Inflation divergence in the euro area: the Balassa-Samuelson effect

Margarita Katsimi

Applied Economics Letters, 2004, vol. 11, issue 5, 329-332

Abstract: This study estimates the Balassa-Samuelson effect for 7 EU countries. According to this effect, inflation differential between the tradable and the non-tradable sector can be attributed to unbalanced productivity growth between the two sectors. For the euro area this implies that countries with higher relative productivity growth in the tradable sector will suffer from higher inflation. We test the Balassa-Samuelson effect by using cointegration techniques. The empirical analysis supports the existence of a Balassa-Samuelson effect for 6 of the sample countries.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:11:y:2004:i:5:p:329-332

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DOI: 10.1080/1350485042000221634

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