Catching-Up and Inflation in Transition Economies: The Balassa-Samuelson Effect Revisited

26 Pages Posted: 27 Jan 2009

See all articles by Dubravko Mihaljek

Dubravko Mihaljek

Bank for International Settlements (BIS) - Monetary and Economic Department

Marc Klau

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 2008

Abstract

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-a-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.

Keywords: Balassa-Samuelson effect, productivity, inflation, transition, convergence, European monetary union, Maastricht criteria

JEL Classification: E31, F36, O11, P20

Suggested Citation

Mihaljek, Dubravko and Klau, Marc, Catching-Up and Inflation in Transition Economies: The Balassa-Samuelson Effect Revisited (December 2008). BIS Working Paper No. 270, Available at SSRN: https://ssrn.com/abstract=1334135 or http://dx.doi.org/10.2139/ssrn.1334135

Dubravko Mihaljek (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Marc Klau

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
41 61 280 80 80 (Phone)
41 61 280 91 00 (Fax)

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