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Catching-up and inflation in transition economies: the Balassa-Samuelson effect revisited

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  • Dubravko Mihaljek
  • Marc Klau

Abstract

This paper estimates the Balassa-Samuelson effects for 11 countries in central and eastern Europe on a disaggregated set of quarterly data covering the period from the mid-1990s to the first quarter of 2008. The Balassa-Samuelson effects are clearly present and explain around 24% of inflation differentials vis-à-vis the euro area (about 1.2 percentage points on average); and around 84% of domestic relative price differentials between non-tradables and tradables; or about 16% of total domestic inflation (about 1.1 percentage points on average). The paper presents mixed evidence on whether the Balassa-Samuelson effects have declined since 2001 compared with the second half of the 1990s.

Suggested Citation

  • Dubravko Mihaljek & Marc Klau, 2008. "Catching-up and inflation in transition economies: the Balassa-Samuelson effect revisited," BIS Working Papers 270, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:270
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    References listed on IDEAS

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    Keywords

    Balassa-Samuelson effect; productivity; inflation; transition; convergence; European monetary union; Maastricht criteria;
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