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Analytical notes on the Balassa-Samuelson effect

  • Leon Podkaminer


    (The Vienna Institute for International Economic Studies (WIIW), Vienna (Austria))

The oft invoked Balassa-Samuelson effect, whereby the movements of prices for non-tradable goods relative to those for tradable goods reflect the movements of relative labour productivities, is customarily derived from a standard neo-classical model with highly restrictive features. Minor modifications to the assumptions underlying the model negate the effect. In general, the effect does not necessarily obtain if technical change alters the elasticity parameters of the production functions. Moreover, theeffect does not generally obtain (or cannot even be derived uniquely) in more general models that allow for non-constant returns to scale or intermediate inputs.

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Article provided by Banca Nazionale del Lavoro in its journal Banca Nazionale del Lavoro Quarterly Review.

Volume (Year): 56 (2003)
Issue (Month): 226 ()
Pages: 207-221

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Handle: RePEc:psl:bnlqrr:2003:32
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  1. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
  2. Buiter, Willem H. & Grafe, Clemens, 2002. "Anchor, Float or Abandon Ship: Exchange Rate Regimes for Accession Countries," CEPR Discussion Papers 3184, C.E.P.R. Discussion Papers.
  3. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  4. Willem H. Buiter & Clemens Grafe, 2002. "Anchor, float or abandon ship: exchange rate regimes for the accession countries," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(221), pages 111-142.
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