Productivity Trends in Europe: Implications for Real Exchange Rates, Real Interest Rates, and Inflation.
ABSTRACT The paper examines a long-run (neoclassical) framework in which differences in productivity growth across sectors and countries lead to inflation differentials. In a currency union, these inflation differentials imply cross-country differentials in real interest rates. The authors estimate the likely size of these differentials for European Union countries, discuss the potential costs of persistent inflation differentials, and comment on the conflicts they may cause within Economic and Monetary Union (EMU). The analytical framework is a variant of the Balassa-Samuelson "productivity hypothesis," which relates sectoral productivity trends to trends in the relative price of home goods. Copyright 2002 by Blackwell Publishing Ltd.
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ABSTRACT: Purpose – The financial crisis starting in 2008 made many European countries opt for a change of exchange rate regime. The choice of price measure as an entry requirement to the European Economic and Monetary Union (EMU) and as input in the monetary policy decision process re-appeared as an important political and research issue. This paper aims to argue that, considering the importance of producer prices in international competition, their role is underplayed by policy makers and researchers. Design/methodology/approach – Producer prices are analyzed in the transition from national exchange-rate regimes to the EMU for 13 two-digit manufacturing sectors in the first 11 countries to adopt the Euro. Findings – It was found that significant price convergence before 1993-1998, but no or modest evidence of convergence after 1998-2005 when the Euro was introduced. This pattern is partly different from what prior studies have found for consumer prices, and is consistent with the change of exchange rate regime to a monetary union anchoring inflation rates. A conditional ß-convergence analysis reveals effective exchange-rate changes and differences in cyclicality as important determinants of price convergence, suggesting that import of inflation is an important determinant of price developments in the EMU. Research limitations/implications – The paper concludes that considering the role of producer prices and their deviating pattern from consumer prices, producer prices are underplayed in the research and deserve more attention. It is argued that increased attention to producer prices is warranted. Practical implications – Focusing monetary policymaking on consumer prices alone appears inefficient. Rather, then, support for the trade-off approach in monetary policy-making is supported. Social implications – In considering different solutions to the financial crisis, increasing attention should be paid to the development of producer prices. Originality/value – This is the first study to focus on producer prices in the research on the transition from a national exchange rate regime to a membership of a monetary union.International Journal of Managerial Finance 04/2011; 7(2):153-178.
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ABSTRACT: This paper examines the existence of convergence and distribution dynamics of food price inflation rates within the European Union. Differences in such specific price index inflation rates and changes in their regional distributions reflect largely differences and developments in market conditions and structures. Traditional measures and approaches to β-convergence and σ-convergence, fail to capture sufficiently the evolving distributional dynamics. The latter includes possible mobility prospects within distributions and potential formation of clubs. To deal with these issues, the paper adopts developments in the literature of non parametric econometric methods and employs an alternative conditional density estimator as well. Implementation of this estimator is superior, not only to the restrictive discrete Markov chain approaches, but also to the usual estimation of conditional densities using stochastic kernels. The adopted estimator has smaller integrated mean square error than the conventional estimators. Panel data analysis of β-convergence is conducted too, using panel unit root tests. Data used are the harmonized consumer price indices of food and eleven specific food product groups for 15 European countries, older member states of the EU. Extracted evidence based on the estimates is presented, analyzed, and conclusions are discussed.European Association of Agricultural Economists, 113th Seminar, September 3-6, 2009, Chania, Crete, Greece. 01/2009;
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ABSTRACT: The goal of this study is to assess whether and to what extent inflation differentials between the tradable and nontradable sectors in the Greek economy are due to the domestic version of the Balassa–Samuelson (BS) effect and, therefore, the ‘expensiveness’ of the country and its huge deficit of international competitiveness. Using data over the period 1989 to 2009 from the Greek economy, the empirical results indicate that the domestic BS effect is present for the case of Greece and seems to explain about 33% of the overall inflation rate.Applied Economics - APPL ECON. 01/2013; 45(23):3288-3294.