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The Balassa-Samuelson Effect and the Wage, Price and Unemployment Dynamics in Spain

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  • Katarina Juselius

    (Department of Economics, University of Copenhagen)

  • Javier Ordóñez

    (Jaume I University, Spain)

Abstract

This paper provides an empirical investigation of the wage, price and unemployment dynamics that have taken place in Spain during the last two decades. The aim of this paper is to shed some light on the impact of the European economic integration process on Spanish labour market and the convergence to a European level of prosperity. We find some important lessons to be learnt from the Spanish experience that should be relevant for the new member states. First, high competitiveness in the tradable sector seems crucial for the real and nominal convergence to be successful, implying that the increase of wages in the tradable sector, and subsequently in the nontradable sector, should not be allowed to exceed the growth in productivity. Second, before fixing the real exchange rate it seems crucial that it is on its sustainable (competitive) purchasing power parity level. A real appreciation, as a result of high growth rates during the catching-up period, is likely to be harmful for real growth and employment.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-29.

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Length: 16 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:kud:kuiedp:0529

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Keywords: Balassa-Samuelson effect; nominal and real convergence; unemployment dynamics; purchasing power parity; cointegrated VAR;

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  1. Francesco Caselli & Silvana Tenreyro, 2005. "Is Poland the Next Spain?," NBER Working Papers 11045, National Bureau of Economic Research, Inc.
  2. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
  3. Banerjee, Anindya & Russell, Bill, 2005. "Inflation and measures of the markup," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 289-306, June.
  4. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
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