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The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus

  • Charalambos Pattichis

    ()

  • Mona Kanaan
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    Focusing on a small open economy, this paper provides very supportive evidence for the Balassa-Samuelson productivity-bias proposition. Using a battery of tests we show that a positive and significant long run relationship exists between the relative price of nontraded goods and real income per capita. An implication of this result is that the prices of services in Cyprus will rise, if EU membership leads to income convergence with the rest of the EU. We have, furthermore, demonstrated that Rogoff's hypothesis, that real oil price changes negatively affect the price of nontradables, is supported by the empirical results. Copyright Kluwer Academic Publishers 2004

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    File URL: http://hdl.handle.net/10.1023/B:OPEN.0000009424.34810.0a
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 15 (2004)
    Issue (Month): 1 (January)
    Pages: 45-56

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    Handle: RePEc:kap:openec:v:15:y:2004:i:1:p:45-56
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    16. repec:fth:inseep:9645 is not listed on IDEAS
    17. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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