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An assessment of the trends in international price competitiveness among EMU countries

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Fischer, Christoph

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Abstract

Inflation differentials within European Monetary Union (EMU) are increasingly seen as exerting adverse effects on the price competitiveness of member countries’ firms and – given the common monetary policy within EMU – as being detrimental to euro-area economies, in particular to those with relatively high inflation rates. Using three simple measures of international price competitiveness for EMU countries, the paper analyses whether these indicators have displayed distinctive trends since the start of EMU and whether they converge with or diverge from their respective fundamental value. It is found that all three indicators suggest a gain in competitiveness for the German economy and a corresponding loss for Italy, Portugal and Spain. Two of the indicators, however, suggest that these trends reduce former disparities and, thus, contribute to a convergence of competitiveness within EMU while the third would imply the opposite.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2007,08.

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Date of creation: 2007
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Handle: RePEc:zbw:bubdp1:5572

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Related research
Keywords: Price competitiveness EMU purchasing power parity productivity approach panel unit root tests panel cointegration

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F31 - International Economics - - International Finance - - - Foreign Exchange
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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