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Price Convergence in EU-Accession Countries: Evidence from the International Comparison

  • Martin Cihak
  • Tomas Holub

The authors analyse price convergence in new EU countries. They estimate the price level elasticity with respect to the GDP in PPP to be 0.7–0.9 percent. They also analyse additional sources of price level convergence, such as terms-of-trade changes or price deregulation. The average speed of real exchange rate appreciation is estimated at about 3 percent a year, and its implications for fulfilling the Maastricht criteria are discussed. Focusing on adjustments in the structures of relative prices, the authors find that it may take about 10–25 years for new EU countries to converge to that of the least developed EU countries.

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Article provided by CEPII research center in its journal Economie Internationale.

Volume (Year): (2005)
Issue (Month): 102 ()
Pages: 59-82

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Handle: RePEc:cii:cepiei:2005-2tc
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  1. Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  3. Alan Heston & Robert E. Lipsey, 1999. "International and Interarea Comparisons of Income, Output, and Prices," NBER Books, National Bureau of Economic Research, Inc, number hest99-1.
  4. Fischer, Christoph, 2002. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," Discussion Paper Series 1: Economic Studies 2002,19, Deutsche Bundesbank, Research Centre.
  5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  6. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  7. Asea, Patrick K & Corden, W Max, 1994. "The Balassa-Samuelson Model: An Overview," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 191-200, October.
  8. Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.
  9. Martin Èihák & Tomáš Holub, 2001. "Price Convergence toward the EU: A Few Open Issues," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(6), pages 349-362, June.
  10. Tomas Holub & Martin Cihak, 2003. "Price Convergence: What Can the Balassa-Samuelson Model Tell Us?," Working Papers 2003/08, Czech National Bank, Research Department.
  11. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  12. Martin Cihak & Tomas Holub, 2003. "Price Convergence to the EU: What Do the 1999 ICP Data Tell Us?," Working Papers 2003/02, Czech National Bank, Research Department.
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