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The Balassa-Samuelson effect in Romania - The role of regulated prices


  • Dumitru, Ionut
  • Jianu, Ionela


Due to the Balassa-Samuelson effect, the candidate countries to the European Monetary Union face a possible conflict between the effects of tradable productivity increase on inflation and on the appreciation of the real exchange rate on one hand, and the Maastricht criteria regarding inflation and exchange rate stability on the other hand. A restrictive monetary policy could succeed in reaching inflation criteria, but only with the cost of slowing down real convergence. This paper deals with the Balassa-Samuelson effect in Romania. The main conclusion of the paper is that in the period 1998-2006 the average annual rate of inflation generated by the Balassa-Samuelson effect in Romania was on average 0.6% in the case of the classical model. Due to the existence of government-regulated prices (mostly non-tradable goods) accounting for as much as 21% of the CPI basket in Romania - the price of non-tradables has increased by less than in the case those prices were market prices. If we include these regulated prices in non-tradable, which is named by us extended model, the impact of Balassa-Samuelson on inflation could have been on average 2.46%. Therefore, the Balassa-Samuelson effect is expected to result into higher inflation with future price liberalization for non-tradables.

Suggested Citation

  • Dumitru, Ionut & Jianu, Ionela, 2009. "The Balassa-Samuelson effect in Romania - The role of regulated prices," European Journal of Operational Research, Elsevier, vol. 194(3), pages 873-887, May.
  • Handle: RePEc:eee:ejores:v:194:y:2009:i:3:p:873-887

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    References listed on IDEAS

    1. De Gregorio, Jose & Giovannini, Alberto & Krueger, Thomas H, 1994. "The Behavior of Nontradable-Goods Prices in Europe: Evidence and Interpretation," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 284-305, October.
    2. Josip Tica & Ivo Družić, 2006. "The Harrod-Balassa-Samuelson Effect: A Survey of Empirical Evidence," EFZG Working Papers Series 0607, Faculty of Economics and Business, University of Zagreb.
    3. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    4. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
    5. Coricelli, Fabrizio & Jazbec, Bostjan, 2004. "Real exchange rate dynamics in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 83-100, March.
    6. Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 552-572, September.
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    Blog mentions

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    1. Alternative view of falling inflation in Romania
      by florincitu in FlorinCitu on 2011-11-11 17:38:00


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    Cited by:

    1. Matsui, Kenji, 2011. "Intrafirm trade, arm's-length transfer pricing rule, and coordination failure," European Journal of Operational Research, Elsevier, vol. 212(3), pages 570-582, August.
    2. Lucian Claudiu ANGHEL & Florina – Magdalena PINZARU & Mihaela DINU, 2014. "Aspects of Price Competitiveness in the Context of Preparing for Accession to the Euro Zone. New Challenges for Entrepreneurs. Romania’s Case," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 2(3), pages 525-536, December.
    3. Lucian Claudiu ANGHEL & Florina PÎNZARU & Mihaela DINU, 2014. "Aspects Regarding The Evolution Of Nominal And Real Convergenge Before And After Adhesion To Euro Zone," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 14, pages 151-161, December.
    4. Oscar Iván Ávila Montealegre & Mauricio Rodríguez Acosta & Hernando Zuleta González, 2014. "The Balassa-Samuelson Hypothesis and Elderly Migration," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 32(74), pages 1-8, June.
    5. repec:nup:jrmdke:v:2:y:2014:i:3:p:525-536 is not listed on IDEAS
    6. Nicolae Ghiba, 2011. "Purchasing Power Parity Influence On Real Exchange Rate Behavior In Romania," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 3(4), pages 524-536, December.
    7. Lucian Claudiu ANGHEL & Laurentiu-Mihai TREAPAT, 2015. "Main Economic Policies in order to Manage an Optimum Accession of Romania to the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 3(1), pages 151-169, March.
    8. Echeverria Garaigorta, Paulina Elisa & Iza Padilla, María Amaya, 2010. "Prices and the Real Exchange Rate in Hong Kong: 1985-2006," DFAEII Working Papers 2010-14, University of the Basque Country - Department of Foundations of Economic Analysis II.
    9. Jareño, Francisco & Navarro, Eliseo, 2010. "Stock interest rate risk and inflation shocks," European Journal of Operational Research, Elsevier, vol. 201(2), pages 337-348, March.
    10. repec:jes:wpaper:y:2011:v:3:p:524-536 is not listed on IDEAS


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