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