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Volume 53, Issue 7 -8

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Price Convergence: What Can the Balassa-Samuelson Model Tell Us? (in English)

Čihák, Martin; Holub, Tomáš

Year: 2003   Volume: 53   Issue: 7 -8   Pages: 334-355

Abstract: The article contributes to the theory of convergence in the price level and relative prices. The authors present a model integrating the Balassa-Samuelson model of real equilibrium exchange rate with a model of capital accumulation and with the demand side of the economy. They also show how the Balassa-Samuelson model can be extended to the case of more than two goods. The predictions of the Balassa-Samuelson model are generally consistent with empirical findings in Central and Eastern European countries. The authors show how the model can be used toward projecting price convergence in a transition economy.

JEL classification: E31, E52, E58, F15, P22

Keywords: inflation; relative prices; Balassa-Samuelson model

RePEc: n/a

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