Trends in European Productivity: Implications for Real Exchange Rates, Real Interest Rates and Inflation Differentials

Matthew Canzoneri, Robert Cumby (), Behzad Diba and Gwen Eudey
Additional contact information
Gwen Eudey: Federal Reserve Board, Washington D.C., http://www.federalreserve.gov

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: The price of home goods relative to traded goods has risen faster in countries like Belgium, Italy, and Spain than it has in Germany. The observed relative-price trends are in line with sectoral trends in relative labor productivity. A neoclassical model with marginal-cost pricing, long run labor mobility within each country, and long-run PPP in the traded sector can account for the observed trends. As long as the productivity trends continue, countries like Belgium, Italy and Spain will experience equilibrium real appreciations against Germany and will have lower equilibrium real interest rates compared to Germany. Convergence in national inflation rates would require nominal appreciations against the DM to avoid competitiveness problems. In a monetary union, the equilibrium real appreciations and real interest-rate differentials can only come out in inflation differentials. The implied inflation differentials are five to ten times larger than those implied by differences in productivity trends across US regions.

Pages: 38
Date: 1998-06-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://www.oenb.at/dam/jcr:4fef6f18-4b03-4500-983 ... /wp27_tcm16-6094.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:onb:oenbwp:27

Ordering information: This working paper can be ordered from
Oesterreichische Nationalbank, Economic Studies Division, POB 61, A-1011 Vienna, Austria

The price is Free subject to availability.

Access Statistics for this paper

More papers in Working Papers from Oesterreichische Nationalbank (Austrian Central Bank) P.O. Box 61, A-1011 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Markus Knell ().