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Price Convergence: What Can the Balassa-Samuelson Model Tell Us? (in English)

Author

Listed:
  • Martin Èihák
  • Tomáš Holub

Abstract

The article contributes to the theory of convergence in the price level and relative prices. The authors present a model integrating the Balassa-Samuelson model of real equilibrium exchange rate with a model of capital accumulation and with the demand side of the economy. They also show how the Balassa-Samuelson model can be extended to the case of more than two goods. The predictions of the Balassa-Samuelson model are generally consistent with empirical findings in Central and Eastern European countries. The authors show how the model can be used toward projecting price convergence in a transition economy.

Suggested Citation

  • Martin Èihák & Tomáš Holub, 2003. "Price Convergence: What Can the Balassa-Samuelson Model Tell Us? (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 53(7-8), pages 334-355, July.
  • Handle: RePEc:fau:fauart:v:53:y:2003:i:7-8:p:334-355
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    References listed on IDEAS

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    1. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters,in: The Inflation-Targeting Debate, pages 249-282 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Martin Mandel & Vladimír Tomšík, 2008. "Real Exchange Rate of the Czech Koruna and the Prices of Non-tradable Goods and Services," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2008(3), pages 3-12.
    2. Égert, Balázs, 2004. "Assessing equilibrium exchange rates in CEE acceding countries : can we have DEER with BEER without FEER? : A critical survey of the literature," BOFIT Discussion Papers 1/2004, Bank of Finland, Institute for Economies in Transition.
    3. Robert Ambrisko, 2015. "A Small Open Economy with the Balassa-Samuelson Effect," CERGE-EI Working Papers wp547, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Luboš Komárek & Martin Motl, 2012. "Behaviorální a fundamentální rovnovážný měnový kurz české koruny
      [Behavioural and Fundamental Equilibrium Exchange Rate of the Czech Koruna]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(2), pages 147-166.

    More about this item

    Keywords

    inflation; relative prices; Balassa-Samuelson model;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices

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