We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Euro-Area Inflation: does the Balassa–Samuelson effect matter?
- Authors
Lommatzsch, Kirsten; Tober, Silke
- Abstract
The paper argues that the Balassa–Samuelson effect is of little importance for the inflation target of the ECB. First, econometric tests of the Balassa–Samuelson effect suggest that the most robust link is found between relative sectoral deflators and relative unit labour costs; i.e. a link that accounts for an incomplete wage pass-through. For the (change in the) HICP — the target of the ECB — and its components additional factors seem to cause divergent international and sectoral developments. Second, countries with high productivity growth in industry may experience a real devaluation in the sector of tradable goods which counters the real appreciation resulting from a relative increase in service prices. It follows that the difference in productivity growth and thus the difference in the size of the relative price adjustment between countries does not have unambiguous consequences for the overall inflation rate, and as such can thus not justify an inflation target well above zero.
- Subjects
EUROZONE; ECONOMETRICS; EUROPEAN Union. European Central Bank; PRICE deflation; ECONOMIC sectors; PRICE inflation; MONETARY policy; FINANCE; INTERNATIONAL Monetary Fund; MANAGEMENT
- Publication
International Economics & Economic Policy, 2006, Vol 3, Issue 2, p105
- ISSN
1612-4804
- Publication type
Article
- DOI
10.1007/s10368-006-0051-7