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Reconsidering the Price-Income Relationship across Countries

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  • Eiji Fujii

Abstract

This study reconsiders the well-known cross-country positive association between prices and income by focusing on heterogeneity between the inter-developed-country and inter-developing-country relationships. Empirical results reveal not only that developed and developing countries differ in magnitude of the income effect on prices, but also that they exhibit the positive price-income association for different reasons. Specifically, we find only for the inter-developed-country case that the positive price-income association is attributable, at least partly, to the Balassa-Samuelson productivity differential effect. The idiosyncrasy of the inter-developing-country relationship is not dissolved by controlling for the effects of a variety of real and financial variables.

Suggested Citation

  • Eiji Fujii, 2013. "Reconsidering the Price-Income Relationship across Countries," CESifo Working Paper Series 4129, CESifo.
    • Handle: RePEc:ces:ceswps:_4129
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    2. Cécile Couharde & Carl Grekou & Valérie Mignon, 2021. "MULTIPRIL, a New Database on Multilateral Price Levels and Currency Misalignments," International Economics, CEPII research center, issue 165, pages 94-117.
    3. Rui Mano & Ms. Carolina Osorio-Buitron & Mr. Luca A Ricci & Mr. Mauricio Vargas, 2019. "The Level REER model in the External Balance Assessment (EBA) Methodology," IMF Working Papers 2019/192, International Monetary Fund.

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    More about this item

    Keywords

    Balassa-Samuelson effect; non-traded goods; purchasing power parity; Penn effect; price-income relationship; productivity differential; real exchange rate;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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