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The Balassa-Samuelson effect and the channels of its absorption in the Central and Eastern European Countries

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Abstract

The aim of the study is to estimate the magnitude of the Balassa-Samuleson effect as well as the effectiveness of the labour and the product market in its absorption in Poland, the Czech Republic, Hungary and Slovakia. The obtained results allowed to determine the magnitude of the systematic component of inflation differentials relative to the euro area, hence to assess the risk of common monetary policy inadequacy with respect to these economies. The obtained estimates suggest that the catching-up driven inflationary pressure is a non-negligible issue in the context of the CEECs integration with the euro area, since the systematic inflation differentials were comparable in size to those experienced by the so-called peripheral member states in the first decade after the introduction of the euro. Moreover, in the case of Poland none of the potential absorption mechanisms of the Balassa-Samuelson effect seemed to mitigate the convergence-induced inflationary pressure over the sample period. The outcomes suggest that ignoring the non-fulfilment of theoretical model assumptions regarding wages and markups, which is common in the literature, distorts estimation results.

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  • Karolina Konopczak, 2013. "The Balassa-Samuelson effect and the channels of its absorption in the Central and Eastern European Countries," NBP Working Papers 163, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:163
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    Cited by:

    1. Jakub Boratyński & Jakub Borowski & Adam Czerniak & Dariusz Rosati, 2017. "The Balassa-Samuelson effect in CEE economies: a CGE analysis," EcoMod2017 10516, EcoMod.
    2. Dariusz Fatula, 2018. "Selected micro- and macroeconomic conditions of wages, income and labor productivity in Poland and other European Union countries," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(1), March.
    3. Robert Ambrisko, 2015. "A Small Open Economy with the Balassa-Samuelson Effect," CERGE-EI Working Papers wp547, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Takao Fujii & Yoichi Matsubayashi, 2016. "The Balassa-Samuelson Effect and the Labor Market in Japan F1977-2008," Discussion Papers 1626, Graduate School of Economics, Kobe University.

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    More about this item

    Keywords

    Balassa-Samuelson hypothesis; monetary integration; real convergence; panel cointegration;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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