Sectoral Productivity and Real Exchange Rate Appreciation: Much Ado about Nothing?
Using panel data for selected national economies, we estimate relative price changes stemming from fluctuations in sectoral productivity. Subsequently, we calculate the cross-country CPI-inflation differentials implied by sectorally unbalanced productivity growth, taking into account country-specific weights of nontradables in consumption (value added) and assuming there are no adjustments in nominal exchange rates. We find that sectoral productivity developments have a statistically significant impact on relative prices in the EU countries and also in the Czech Republic, but the magnitude of the impact is not as strong as the Balassa-Samuelson Effect (BSEF) would predict. The final impact of relative productivity on inflation (on the real exchange rate) is even weaker and, moreover, in the case of the Czech Republic the impact is negligible. Thus, contrary to the prevailing view, we question the meaning of the BSEF as a plausible explanatory variable of (equilibrium) real exchange rate determination in the Czech Republic. The same situation we simulate for the future, provided productivity growth in the traded sector does not accelerate dramatically.
Volume (Year): 53 (2003)
Issue (Month): 3-4 (March)
|Contact details of provider:|| Postal: |
Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
More information through EDIRC
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.:
- Tyrväinen, Timo, 1998. "What Do We Know about Productivity Gaps and Convergence in EMU Economies?," Research Discussion Papers 31/1998, Bank of Finland.
- Enrique Alberola-Ila & Tymo Tyrväinen, 1998.
"Is there Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries,"
Banco de Espa�a Working Papers
9823, Banco de Espa�a.
- Alberola, Enrique & Tyrväinen, Timo, 1998. "Is There Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries," Research Discussion Papers 15/1998, Bank of Finland.
- Balázs Egert, 2002. "Investigating the Balassa-Samuelson hypothesis in the transition: Do we understand what we see? A panel study," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 273-309, July.
- Michael Reutter & Hans-Werner Sinn, 2000.
"The Minimum Inflation Rate for Euroland,"
CESifo Working Paper Series
377, CESifo Group Munich.
- Vladislav Flek & Mojmír Hájek & Jaromír Hurník & Ladislav Prokop & Lenka Racková, 2001. "Supply-side performance and structure," Politická ekonomie, University of Economics, Prague, vol. 2001(6).
- 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.
- TomÃ¡s Holub & Martin CihÃ¡k, 2001. "Convergence of Relative Prices and Inflation in Central and Eastern Europe," IMF Working Papers 01/124, International Monetary Fund.
- Matthew Canzoneri & Robert Cumby & Behzad Diba & Gwen Eudey, 1998. "Trends in European Productivity: Implications for Real Exchange Rates, Real Interest Rates and Inflation Differentials," Working Papers 27, Oesterreichische Nationalbank (Austrian Central Bank).
- R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:53:y:2003:i:3-4:p:130-153. 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: (Lenka Herrmannova)
If references are entirely missing, you can add them using this form.