Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153261
Authors: 
Lein-Rupprecht, Sarah M.
León-Ledesma, Miguel A.
Nerlich, Carolin
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 827
Abstract: 
The purpose of this paper is to evaluate the empirical relevance of real convergence on the process of nominal convergence for the new EU Member States. We discuss two of the main channels through which real convergence could affect relative prices with respect to the euro area: productivity growth and increased trade openness. Productivity growth can have a positive effect on price levels via the Balassa-Samuelson effect, whereas increased openness leads to reductions in mark-ups and costs and therefore can have a negative impact on prices. In order to assess their empirical relevance, we used a Structural VAR model to which we applied a model reduction algorithm. This method accounts for endogeneity and simultaneity and circumvents the problem of limited data availability. Our findings show that, in general, openness has had a negative impact and productivity growth a positive one on price level convergence with respect to the euro area.
Subjects: 
inflation
new EU Member States
nominal convergence
real convergence
JEL: 
O52
E31
Document Type: 
Working Paper

Files in This Item:
File
Size
815.43 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.