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Price Competitiveness in the European Monetary Union: A Decomposition of Inflation Differentials based on the Leontief Input-Output Price Model for the Period 2000 to 2014

Author

Listed:
  • Eder, Andreas
  • Koller, Wolfgang
  • Mahlberg, Bernhard

Abstract

This paper studies the persistent producer price inflation differentials within the European Monetary Union. By applying a decomposition procedure within the input-output framework, the drivers of sectoral producer price inflation in a representative sample of member states are re-vealed. We find that in the pre-crisis period (2001-2008) the inflation differentials in manufactur-ing and market services of all countries vis-à-vis Germany were consistently positive resulting in a loss of price competitiveness for all economies. Manufacturing and market service sectors of many countries continued to lose price competitiveness, though to a lesser extent, also during the crisis period (2009-2014). We observe that differences in unit labour cost developments across countries constitute an important driver, especially in the pre-crisis period. Other drivers, such as import costs, intermediate input costs and operating surpluses also contribute, in particular dur¬ing the crisis period.

Suggested Citation

  • Eder, Andreas & Koller, Wolfgang & Mahlberg, Bernhard, 2019. "Price Competitiveness in the European Monetary Union: A Decomposition of Inflation Differentials based on the Leontief Input-Output Price Model for the Period 2000 to 2014," MPRA Paper 95158, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95158
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    References listed on IDEAS

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    More about this item

    Keywords

    European Integration; Producer Price Inflation; Real Exchange Rates; Gross Output Price Deflators; National Accounts;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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