Convergence of Relative Prices and Inflation in Central and Eastern Europe

September 1, 2001

Preview Citation

Format: Chicago

Tomás Holub, and Martin Cihak. Convergence of Relative Prices and Inflation in Central and Eastern Europe, (USA: International Monetary Fund, 2001) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper assesses inflation risks resulting from the convergence of structures of relative prices in Central and Eastern European (CEE) countries toward the European Union (EU). The basic idea of the paper is that under low downward flexibility of domestic nominal prices, the adjustment of relative price structures is likely to lead to higher inflation. The authors find that the degree of differences in the structures of relative prices in transition economies vis-à-vis EU economies has a strong negative relationship to price levels in the transition economies. Based on their calculations, the authors assess the likely future inflationary pressures that can stem from the remaining differences between the structures of relative prices in the CEE economies and the EU. The authors argue that their approach can be thought of as an extension of the standard Balassa-Samuelson explanation of international variability in price levels.

Subject: Commodities, Consumption, Inflation, National accounts, Price adjustments, Price structures, Prices

Keywords: Balassa-Samuelson effect, Central and Eastern Europe, Commodity group, Consumption, Eastern Europe, Eastern EuropeConvergence, Global, Goods price index, Inflation, Inflation in central, Nontradable commodity, Price adjustments, Price difference, Price level, Price structures, Relative price, Relative price differentiation, Slope coefficient, Sticky prices, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/124
Stock No:

WPIEA1242001
ISBN:

9781451854725
ISSN:

1018-5941

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