Productivity, Tradability and the Long-Run Price Puzzle

Paul Bergin, Reuven Glick () and Alan M. Taylor ()

No 4494, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higher price levels than poorer countries, a stylized fact usually attributed to the ‘Balassa-Samuelson’ effect. But looking back 50 years, or more, this effect virtually disappears from the data. What is often assumed to be a universal property is actually quite specific to recent times. What might explain this historical pattern? We adopt a framework where goods are differentiated by tradability and productivity. A model with monopolistic competition, a continuum-of-goods, and endogenous tradability allows for theory and history to be consistent for a wide range of underlying productivity shocks.

Keywords: great divergence; real exchange rate; Ricardo-Harrod-Balassa-Samuelson effect (search for similar items in EconPapers)
JEL-codes: F40 F43 N10 N70 (search for similar items in EconPapers)
Date: 2004-07
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Related works:
Working Paper: Productivity, tradability, and the long-run price puzzle (2004)
Working Paper: Productivity, Tradability, and the Long-Run Price Puzzle (2004)
Working Paper: Productivity, Tradability, and the Long-Run Price Puzzle (2005)
Journal Article: Productivity, tradability, and the long-run price puzzle (2006)
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