Inflation – Harrod-Balassa-Samuelson effect in a DSGE model setting

Črt Lenarčič

MPRA Paper from University Library of Munich, Germany

Abstract: This paper sets up a two-country two-sector dynamic stochastic general equilibrium model that introduces sector specific productivity shocks with quality improvement mechanism of goods. It provides a model-based theoretical background for the Harrod-Balassa-Samuelson phenomenon that describes the relationship between productivity and price inflation within different sectors of a particular economy. Both, the calibrated and the estimated model are able to show that the induced tradable sector productivity shocks drive the non-tradable and tradable sector price inflation upwards. By doing this, we overcome the problem that the tradable productivity increase in a typical open economy specification reduces the relative price of domestic tradable goods relative to the foreign ones.

Keywords: Harrod-Balassa-Samuelson effect; DSGE model; inflation; productivity; quality improvement (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Published in Economic and Business Review 2.21(2019): pp. 275-308

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101199

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