This study analyses the impact of economic catching-up on annual inflation rates in the European Union with a special focus on the new member countries of Central and Eastern Europe. Using an array of estimation methods, we show that the Balassa-Samuelson effect is not an important driver of inflation rates. By contrast, we find that the initial price level and regulated prices strongly affect inflation outcomes in a nonlinear manner and that the extension of Engel’s Law may hold during periods of very fast growth. We interpret these results as a sign that price level convergence comes from goods, market and non-market service prices. Furthermore, we find that the Phillips curve flattens with a decline in the inflation rate, that inflation persistence increases and that commodity prices have a stronger effect on inflation in a higher inflation environment.
Catching-up and Inflation in Europe
Balassa-Samuelson, Engel's Law and Other Culprits
Working paper
OECD Economics Department Working Papers
Share
Facebook
Twitter
LinkedIn
Abstract
In the same series
-
Working paper20 September 2024
-
5 September 2024
-
5 September 2024
Related publications
-
16 October 2024
-
Working paper20 September 2024