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Real Convergence And Price Levels: Long‐Term Tendencies Versus Short‐Term Performance In The Enlarged European Union

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  • Leon Podkaminer

Abstract

A cross‐country regression relating the relative price level to the relative GDP level is statistically significant and stable over time. Price and GDP levels for EU member countries tend to gravitate to that line. The conclusion that there is a shorter‐term trade‐off between fast real convergence and low inflation is unwarranted. Higher inflation is not a necessary companion of fast convergence. Giving up national currency, or pegging it to the euro, may prevent real convergence or precipitate divergence. A weak initial price level may be insufficient. While retaining national currency is not risk‐free, it allows a corrective devaluation.

Suggested Citation

  • Leon Podkaminer, 2010. "Real Convergence And Price Levels: Long‐Term Tendencies Versus Short‐Term Performance In The Enlarged European Union," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 640-664, November.
    • Handle: RePEc:bla:metroe:v:61:y:2010:i:4:p:640-664
    DOI: 10.1111/j.1467-999X.2009.04083.x
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    2. Leon Podkaminer, 2013. "Development Patterns of Central and East European Countries (in the course of transition and following EU accession)," wiiw Research Reports 388, The Vienna Institute for International Economic Studies, wiiw.
    3. Josef Taušer & Markéta Arltová & Pavel Žamberský, 2015. "Czech Exports and German GDP: A Closer Look," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(1), pages 17-37.
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    5. International Monetary Fund, 2012. "Assessing Competitiveness Using Industry Unit Labor Costs: An Application to Slovakia," IMF Working Papers 2012/107, International Monetary Fund.
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