Inflation, Shadow Prices and the EMU: Evidence From Greece

Mike Tsionas and Dimitris Christopoulos

Bulletin of Economic Research, 2004, vol. 56, issue 3, 251-269

Abstract: The paper examines whether inflation systematically distorts the informational content of price signals. A shadow cost function is specified, and the deviation of shadow from actual prices is modeled as a function of the level of economy‐wide inflation, as well as other conditioning variables like budget deficits and changes in inflation rate. It is found that inflation is associated with significant allocative costs in most Greek manufacturing sectors. Measures of cost gains resulting from Greece's convergence towards the EMU are provided and the policy implications are explored.

Date: 2004
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https://doi.org/10.1111/j.1467-8586.2004.00201.x

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