Revisiting the Balassa-Samuelson effect
The authors use a disaggregated set of quarterly data covering the period from the mid-1990s to the first quarter of 2008.
"The Balassa-Samuelson effects are clearly present and explain around 24% of inflation differentials vis-a-vis the euro area (about 1.2 percentage points on average); and around 84% of domestic relative price differentials between non-tradables and tradables; or about 16% of total domestic inflation (about 1.1 percentage points on average)," the authors find.
The paper presents mixed evidence on whether the Balassa-Samuelson effects have declined since 2001 compared with the second half of the 1990s.
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