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Volume 51, Issue 6

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On the Differences in Price Levels between the Czech Republic and Germany

SkoĊ™epa, Michal

Year: 2001   Volume: 51   Issue: 6   Pages: 363-375

Abstract: According to the results of the International Comparison Project, based on exchange rates and prices recorded in 1996, prices in the Czech Republic (CR) were markedly lower than prices charged for many comparable products and services in the European Union. This observation led some commentators to conclude that there is price tension between the two economies and that the CR?s entry into the EU will cause a price shock in the CR unless every effort is made to raise the CR?s comparative price level in advance. This line of thinking wrongly assumes that the CR?s entry into the EU will necessarily equalize Czech and EU prices. The article, focusing on a comparison with Germany, lists several reasons why such a shock is not a certainty and also cites some of the more important price pressures that are likely to influence Czech price level during the country?s accession to the EU.

JEL classification: E31, F13, F15

Keywords: comparative price level; tradable and non-tradable goods; law of one price

RePEc: n/a

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