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Inflation and Productivity Differentials in EMU

  • Paul De Grauwe
  • Frauke Skudelny
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    The aim of this paper is to find out whether the Balassa-Samuelson effect is important in EMU. We use panel data going from 1970 to 1995 for the current EU members in order to estimate the long run effect of bilateral differences in productivity growth differential between the traded and non-traded goods sector on bilateral inflation differentials. The regression results indicate a significant effect of the productivity differential, as proposed by the theory. According to our regression results, the impact of a productivity shock on the inflation differential can be quite substantial, going up to an 8% increase in the inflation differential.

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    File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps00/Dps0015.pdf
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    Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0015.

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    Date of creation: Mar 2000
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    Handle: RePEc:ete:ceswps:ces0015
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