The Balassa-Samuelson effect in Romania - The role of regulated prices
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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2002. "The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?," William Davidson Institute Working Papers Series 483, William Davidson Institute at the University of Michigan.
- Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2005. "The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?," Documents de recherche 05-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
- 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.
- Jose De Gregorio & Thomas Krueger & Alberto Giovannini, 1993.
"The Behavior of Nontradable Goods Prices in Europe; Evidence and Interpretation,"
IMF Working Papers
93/45, International Monetary Fund.
- 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.
- 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.
- Coricelli, Fabrizio & Jazbec, Bostjan, 2001. "Real Exchange Rate Dynamics in Transition Economies," CEPR Discussion Papers 2869, C.E.P.R. Discussion Papers.
- Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:194:y:2009:i:3:p:873-887. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.