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The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?

Author

Listed:
  • Balázs Égert
  • Imed Drine
  • Kirsten Lommatzsch
  • Christophe Rault

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

This paper studies the Balassa-Samuelson effect in nine Central and East European countries. Using panel cointegration techniques, we find that the productivity growth differential in the open sector leads to inflation in non-tradable goods. Because of the low share of non-tradables and the high share of food items in addition to regulated prices, the consumer price index is misleading when analyzing the Balassa-Samuelson effect. Consequently, the appreciation of the real exchange rate, which has been established as a stylized fact over the last decade, is caused only partly by the Balassa-Samuelson effect. We identify a trend increase in the prices of tradable goods as a contributing explanation. © Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

Suggested Citation

  • Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?," Post-Print hal-02878012, HAL.
    • Handle: RePEc:hal:journl:hal-02878012
    DOI: 10.1016/S0147-5967(03)00051-9
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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