IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Price convergence in the enlarged internal market

  • Christian Dreger
  • Konstantin Kholodilin
  • Kirsten Lommatzsch
  • Jirka Slacalek
  • Przemyslaw Wozniak

The studies' main aim is to investigate the effects of the EU-10 enlargement on price convergence within the Internal Market. It distinguishes between the opposite forces provided by: (1) the catching up effect of the EU-10, expected to lead to a rise in price levels; and (2) increased competitiveness pressure on prices expected to lower price levels due to lower mark ups of prices over marginal costs. The study is based on comparative price levels for the EU-25, covering the period 1999-2004. Distinct variables were identified as proxies for the catching-up and competition forces. The following analysis proceeded in two steps. First, it is examined whether price convergence has occurred and, second, what are its main drivers. The results confirm the presence of price convergence. This process is particularly visible in the case of basic headings, most likely because they are related to more homogeneous products. Moreover, both catching up and competition have been important factors for explaining price convergence. In addition, both effects seem to be more pronounced for the EU-10 than for the EU-15.

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: http://ec.europa.eu/economy_finance/publications/publication10179_en.pdf
Download Restriction: no

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 292.

as
in new window

Length: 93 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:euf:ecopap:0292
Contact details of provider: Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htmEmail:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Wagner, Martin, 2005. "The Balassa-Samuelson Effect in 'East & West'. Differences and Similarities," Economics Series 180, Institute for Advanced Studies.
  2. John Van Reenen & Nick Bloom & Steve Bond, 2006. "Uncertainty and investment dynamics," LSE Research Online Documents on Economics 2645, London School of Economics and Political Science, LSE Library.
  3. Haroon Mumtaz & Paolo Surico, 2012. "Evolving International Inflation Dynamics: World And Country-Specific Factors," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 716-734, 08.
  4. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December.
  5. Anindya Banerjee & Bill Russell, 2002. "Inflation and Measures of the Markup," Dundee Discussion Papers in Economics 130, Economic Studies, University of Dundee.
  6. Benigno, Gianluca & Christoph Thoenissen, 2002. "Equilibrium Exchange Rates and Supply Side Performance," Royal Economic Society Annual Conference 2002 19, Royal Economic Society.
  7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  8. Arratibel, Olga & Rodriguez-Palenzuela, Diego & Thimann, Christian, 2002. "Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective," Working Paper Series 0132, European Central Bank.
  9. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," NBER Working Papers 5654, National Bureau of Economic Research, Inc.
  10. Lutz, Matthias, 2003. "Price Convergence under EMU? First Estimates," Royal Economic Society Annual Conference 2003 143, Royal Economic Society.
  11. Égert, Balázs & Halpern, László & MacDonald, Ronald, 2004. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," CEPR Discussion Papers 4809, C.E.P.R. Discussion Papers.
  12. David C. Parsley & Shang-Jin Wei, 2003. "A Prism into the PPP Puzzles: The Micro-foundations of Big Mac Real Exchange Rates," NBER Working Papers 10074, National Bureau of Economic Research, Inc.
  13. Stephen Cecchetti & Nelson C. Mark & Robert Sonora, 1999. "Price Level Convergence Among United States Cities: Lessons for the European Central Bank," Working Papers 99-01, Ohio State University, Department of Economics.
  14. Charles Engel & John H. Rogers, 1999. "Violating the Law of One Price: Should We Make a Federal Case Out of It?," NBER Working Papers 7242, National Bureau of Economic Research, Inc.
  15. Martin Eichenbaum & Jonas D.M. Fisher, 2003. "Evaluating the Calvo model of sticky prices," Working Paper Series WP-03-23, Federal Reserve Bank of Chicago.
  16. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank).
  17. Koedijk, Kees G. & Tims, Ben & van Dijk, Mathijs A., 2004. "Purchasing power parity and the euro area," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1081-1107.
  18. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June.
  19. R. Macdonald & L. Ricci, 2003. "PPP and the Balassa Samuelson Effect: The Role of the DistributionSector," DNB Staff Reports (discontinued) 81, Netherlands Central Bank.
  20. Goldberg, Pinelopi & Verboven, Frank, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," CEPR Discussion Papers 2926, C.E.P.R. Discussion Papers.
  21. Banerjee, Anindya & Russell, Bill, 2004. "A reinvestigation of the markup and the business cycle," Economic Modelling, Elsevier, vol. 21(2), pages 267-284, March.
  22. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," CEPR Discussion Papers 1672, C.E.P.R. Discussion Papers.
  23. Dubravko Mihaljek & Marc Klau, 2003. "The Balassa-Samuelson effect in central Europe: a disaggregated analysis," BIS Working Papers 143, Bank for International Settlements.
  24. Artis, M. & Krolzig, H.-M. & Toro, J., 1999. "The European Business Cycle," Economics Working Papers eco99/24, European University Institute.
  25. Monika Blaszkiewicz & Przemek Kowalski & Lukasz Rawdanowicz & Przemyslaw Wozniak, 2004. "Harrod-Balassa-Samuelson Effect in Selected Countries of Central and Eastern Europe," CASE Network Reports 0057, CASE-Center for Social and Economic Research.
  26. Tomás Holub & Martin Cihák, 2001. "Convergence of Relative Prices and Inflation in Central and Eastern Europe," IMF Working Papers 01/124, International Monetary Fund.
  27. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
  28. Matteo Ciccarelli & Benoît Mojon, 2007. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy.
  29. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  30. Khalid Sekkat & Adriaan Dierx & Fabienne Ilzkovitz, 2004. "European integration and the functioning of product markets," ULB Institutional Repository 2013/7310, ULB -- Universite Libre de Bruxelles.
  31. Ronald MacDonald & Cezary Wójcik, 2003. "Catching Up: The Role of Demand, Supply and Regulated Price Effects on the Real Exchange Rates of Four Accession Countries," CESifo Working Paper Series 899, CESifo Group Munich.
  32. Charles Engel, 1992. "Real Exchange Rates and Relative Prices: An Empirical Investigation," NBER Working Papers 4231, National Bureau of Economic Research, Inc.
  33. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, August.
  34. Martin Wagner & Jaroslava Hlouskova, 2004. "What's Really the Story with this Balassa-Samuelson Effect in the CEECs?," Diskussionsschriften dp0416, Universitaet Bern, Departement Volkswirtschaft.
  35. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  36. Jonathan Haskel & Holger C. Wolf, 2001. "The Law of One Price - A Case Study," CESifo Working Paper Series 428, CESifo Group Munich.
  37. Pinelopi Koujianou Goldberg & Frank Verboven, 2004. "Cross-country price dispersion in the euro era: a case study of the European car market," Economic Policy, CEPR;CES;MSH, vol. 19(40), pages 483-521, October.
  38. Lommatzsch, Kirsten & Tober, Silke, 2004. "What is behind the real appreciation of the accession countries' currencies?: An investigation of the PPI-based real exchange rate," Economic Systems, Elsevier, vol. 28(4), pages 383-403, December.
  39. Andrén, Niclas & Oxelheim, Lars, 2006. "Producer Prices in the Transition to a Common Currency," Working Paper Series 668, Research Institute of Industrial Economics.
  40. Dobado, Rafael & Marrero, Gustavo A., 2005. "Corn Market Integration in Porfirian Mexico," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 103-128, March.
  41. Nigel F.B. Allington & Paul A. Kattuman & Florian A. Waldmann, 2005. "One Market, One Money, One Price?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
  42. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  43. Paul G. J. O'Connell & Shang-Jin Wei, 1997. ""The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged," NBER Working Papers 6089, National Bureau of Economic Research, Inc.
  44. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  45. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  46. Allington, Nigel FB & Kattuman, Paul A & Waldmann, Florian A, 2005. "One Market, One Money, One Price?," MPRA Paper 835, University Library of Munich, Germany.
  47. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  48. John H. Rogers & Gary Clyde Hufbauer & Erika Wada, 2001. "Price Level Convergence and Inflation in Europe," Working Paper Series WP01-1, Peterson Institute for International Economics.
  49. Tomas Holub & Martin Cihak, 2003. "Price Convergence: What Can the Balassa-Samuelson Model Tell Us?," Working Papers 2003/08, Czech National Bank, Research Department.
Full references (including those not matched with items on IDEAS)

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:euf:ecopap:0292. 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: (ECFIN INFO)

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.