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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/38976
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| Title: | | Catching-up and inflation in Europe: Balassa-Samuelson, Engel's law and other Culprits  |
| Authors: | | Égert, Balázs |
| Issue Date: | | 2010 |
| Series/Report no.: | | CESifo working paper Monetary Policy and International Finance 3110 |
| Abstract: | | This study analyses the impact of economic catching-up on annual inflation rates in the European Union with a special focus on the new member countries of Central and Eastern Europe. Using an array of estimation methods, we show that the Balassa-Samuelson effect is not an important driver of inflation rates. By contrast, we find that the initial price level and regulated prices strongly affect inflation outcomes in a nonlinear manner and that the extension of Engel's Law may hold during periods of very fast growth. We interpret these results as a sign that price level convergence comes from goods, market and non-market service prices. Furthermore, we find that the Phillips curve flattens with a decline in the inflation rate, that inflation is more persistant and that commodity prices have a stronger effect on inflation in a higher inflation environment. |
| Subjects: | | European Union inflation Balassa-Samuelson real convergence catching up Bayesian model average non-linearity |
| JEL: | | E43 E50 E52 C22 G21 O52 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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