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Inflation, Shadow Prices and the EMU: Evidence From Greece

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  • Efthymios G. Tsionas
  • Dimitris K. Christopoulos

Abstract

The paper examines whether inflation systematically distorts the informational content of price signals. A shadow cost function is specified, and the deviation of shadow from actual prices is modeled as a function of the level of economy-wide inflation, as well as other conditioning variables like budget deficits and changes in inflation rate. It is found that inflation is associated with significant allocative costs in most Greek manufacturing sectors. Measures of cost gains resulting from Greece's convergence towards the EMU are provided and the policy implications are explored. Copyright Blackwell Publishers Ltd and the Board of Trustees of the Bulletin of Economic Research, 2004.

Suggested Citation

  • Efthymios G. Tsionas & Dimitris K. Christopoulos, 2004. "Inflation, Shadow Prices and the EMU: Evidence From Greece," Bulletin of Economic Research, Wiley Blackwell, vol. 56(3), pages 251-269, July.
  • Handle: RePEc:bla:buecrs:v:56:y:2004:i:3:p:251-269
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D29 - Microeconomics - - Production and Organizations - - - Other
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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