Catching-up and Inflation in Transition Economies: The Balassa-Samuelson Effect Revisited
Bank for International Settlements, Monetary and Economic Department, 2008 - Convergence (Economics) - 25 pages
This paper estimates the Balassa-Samuelson effects for 11 countries in central and eastern Europe on a disaggregated set of quarterly data covering the period from the mid-1990s to the first quarter of 2008. The Balassa-Samuelson effects are clearly present and explain around 24% of inflation differentials vis-à-vis the euro area (about 1.2 percentage points on average); and around 84% of domestic relative price differentials between non-tradables and tradables; or about 16% of total domestic inflation (about 1.1 percentage points on average). The paper presents mixed evidence on whether the Balassa-Samuelson effects have declined since 2001 compared with the second half of the 1990s.
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1.2 percentage points average labour productivity Balassa Balassa-Samuelson hypothesis Bulgaria catching-up CEE countries classiﬁcation CPl basket Croatia Czech Republic domestic Balassa-Samuelson effect domestic inﬂation economies Egert equation Estonia euro area Eurostat exchange rate regime exchange rate stability ﬁg ﬁnancial ﬁrst quarter Frank Packer Graph A1 growth in tradable higher Hungary inﬂation differential vis-a-vis international Balassa-Samuelson effects Latvia Maastricht criteria Maastricht inﬂation criterion Maastricht treaty Mihaljek and Klau nominal exchange rate non-tradable industries non-tradable sectors overall inﬂation points on average Poland price of non-tradables productivity growth differentials Productivity tradable quarter of 2008 Real wages tradable regressions relative price differentials relative productivity differentials sample period Samuelson effect seasonally adjusted sectoral productivity differential September 2008 share of non-tradables Slovakia Slovenia statistically signiﬁcant sub-period total factor productivity tradable and non-tradable tradable BG tradable CZ tradable HU tradable LT tradable PL tradable sectors traded and non-traded vis-a-vis the euro Wage non tradable