Analytical notes on the Balassa-Samuelson effect
DOI:
https://doi.org/10.13133/2037-3643/9898Keywords:
TechnicalAbstract
The oft invoked Balassa-Samuelson effect, whereby the movements of prices for non-tradable goods relative to those for tradable goods reflect the movements of relative labour productivities, is customarily derived from a standard neo-classical model with highly restrictive features. Minor modifications to the assumptions underlying the model negate the effect. In general, the effect does not necessarily obtain if technical change alters the elasticity parameters of the production functions. Moreover, the effect does not generally obtain (or cannot even be derived uniquely) in more general models that allow for non-constant returns to scale or intermediate inputs.
JEL Codes: F11, F16, J24, O33
References
BUITER W.H. and C. GRAFE (2002), "Anchor, float or abandon ship: exchange rate regimes for accession countries", Banca Nazionale del Lavoro Quarterly Review, vol. 55, no. 221, pp. 111-42.
DE GREGORIO J., A. GIOVANNINI and H.C. WOLF (1994), "International evidence on tradables and non-tradables inflation", European Economic Review, vol. 38, no. 6, pp. 1225-44.
DIEWERT W.E. (1991), "The index numbers", in J. Eatwell, M. Milgate and P. Newman eds, The New Palgrave, vol. 2, Macmillan, London and Basingstoke, pp. 767-80.
FROOT K.A. and K. ROGOFF (1995), "Perspectives on PPP and long-run exchange rates", in G.M. Grossman and K. Rogoff eds, Handbook of International Economics, vol. III, Elsevier, New York, pp. 1648-88.
PODKAMINER L. (1999), "Non-tradable goods and deviations between purchasing power parities and exchange rates: evidence from the 1990 European Comparison Project", in H. Gabrisch and R. Pohl eds, EU Enlargement and Macroeconomic Effects in Eastern Europe. Currencies, Prices, Investment and Competitiveness, Macmillan, London and Basingstoke, pp. 62-93.
RICHARDS A.J. and G. TERSMAN (1996), "Growth, non-tradables and price convergence in the Baltics", Journal of Comparative Economics, vol. 23, no. 2, pp. 121-45.
UNO (2001), "Economic transformation and real exchange rates in the 2000s: the Balassa-Samuelson connection", in Economic Survey of Europe, vol. 1, United Nations, Geneva and New York, pp. 227-39.
Downloads
Published
How to Cite
Issue
Section
License
