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Deviations from Purchasing Power Parity: Any Role for the Harrod-Balassa-Samuelson Hypothesis?

  • Manuela Nenna


    (Ministero dell’Economia e delle Finanze, Roma
    Università «La Sapienza», Roma)

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    The aim of this paper is to explain relative prices divergences among cities within the same currency area, such as Italy. According to our results, we find relative prices mean reverting, but at a very slow rate. The measure of persistence is high also in a well-established “monetary union” such as Italy, where some of the standard reasons behind deviations from the parity are minimised or negligible. In this work, we suggest two main explanations. First, arbitrage impediments due to transportation costs, account for part of this divergence. Second, the Harrod-Balassa-Samuelson effect is also found to be partially responsible for such persistence.

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    Article provided by SIPI Spa in its journal Rivista di Politica Economica.

    Volume (Year): 92 (2002)
    Issue (Month): 4 (July-August)
    Pages: 167-196

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    Handle: RePEc:rpo:ripoec:v:92:y:2002:i:4:p:167-196
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