IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The enlargement of the euro area: differences in relative inflation

Listed author(s):
  • Lukasz Rawdanowicz

This paper investigates the structural determinants of relative inflation (i.e. the inflation of non-tradables vs tradables) in the context of overall inflation differentials in the EU. The analysis is based on the Bergstrand theoretical model. This framework incorporates three alternative hypotheses of relative inflation (Harrod-Balassa-Samuelson, relative factors endowment, and demand effects). Due to the lack of reliable data on capital stocks only a curtailed version of the model is tested here empirically. The various specifications of the model are estimated for the majority of EU countries, using the Pedroni panel group mean FMOLS estimator. In general, relative labour productivity and demand factors turn out to be significant and correctly signed, though evidence in favour of the latter effect seems to be less robust. In addition, differences in the determination of relative prices between the new and old EU Member States are found. They seem to be consistent with theoretical considerations and the transition phenomenon. The estimation results are very sensitive to the definition of non-tradables. The paper also discusses policy implications for overall inflation, stemming from relative price models. It questions the usefulness of relative inflation models for the analysis of overall inflation differentials and practical policy decisions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 22 (2008)
Issue (Month): 5 ()
Pages: 623-638

in new window

Handle: RePEc:taf:irapec:v:22:y:2008:i:5:p:623-638
DOI: 10.1080/02692170802287698
Contact details of provider: Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:irapec:v:22:y:2008:i:5:p:623-638. 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: (Michael McNulty)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.