András Mihály Kovács (ed.) () (Magyar Nemzeti Bank)
Abstract
In this paper we try to give a summary on the importance of the productivity based real appreciation e.g. the Balassa-Samuelson (BS) effect in five Central and Eastern European (CEC5) countries, namely the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia. We develop our approach from two directions. Firstly, we try to apply a common simple analytical framework for producing some stylised facts, and obtaining a “guesstimate” of relative price movements due to different sectoral productivity growth rates. Secondly, we try to summarise the econometric evidence available for the countries, both from individual country and panel estimates. It seems clear from the analyses, that both approaches gives a size of the BS effect not exceeding 2% per annum on CPI inflation vis-à-vis Germany. The numbers obtained are somewhat different, that one would conclude from the change in relative prices in the countries considered. This result might be explained by the fact, that the BS hypotheses did not hold exactly in the past, other factors like change in the sectoral wage rates, pricing behaviour and indermediate product prices also contributed to the behaviour of the nontradable and tradable price ratio. As these estimates are based on past data, when productivity differentials were higher than current figures, it is very likely, that as the catch-up goes by, the possible magnitude of the effect will be even smaller. From this one might conclude that real convergence should not necessary danger the fulfilment of the Maastricht Treaty Criteria on inflation.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Magyar Nemzeti Bank (The Central Bank of Hungary) in its series MNB Working Papers with number
2002/5.