Productivity differentials and external balance in ERM II

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dc.contributor Bank of Finland
dc.contributor.author Henriksson, Marketta
dc.date.accessioned 2014-09-29T09:55:30Z
dc.date.available 2015-01-29T09:55:30Z
dc.date.issued 2005
dc.identifier.isbn 952-462-203-3
dc.identifier.issn 1456-6184
dc.identifier.uri https://helda.helsinki.fi/bof/handle/123456789/13537
dc.description.abstract Differences in growth, productivity and inflation levels are going to be a prominent feature of the future of EMU, as the convergence process is still on-going in the new Member States. This convergence process can be described by the Balassa-Samuelson proposition, which states that faster growth in the traded goods sector than in the non-traded goods sector results in a rise in the price of non-traded goods and an appreciation of the trend real exchange rate. In this study, the aim is to construct a small open economy model that enables examination of the effects of Balassa-Samuelson-type growth in an intertemporal fixed exchange rate framework with a focus on the external balance. To address the well-known problems with small open economy models, an endogenous discount rate is used. The results imply that faster productivity growth in the traded than in the non-traded goods sector may induce external imbalances, leading to increased vulnerability of the economy. However, trade account deficits would appear to be a temporary phenomenon, as this line of development can be reversed by the natural shift in the composition of consumption towards non-traded goods that is characteristic of catch-up economies. In the meantime, fiscal policy plays a key role. Key words: small open economy, Balassa-Samuelson effect, ERM II, external balance JEL classification numbers: F41, F33, F32
dc.format.extent 36
dc.language.iso ENG
dc.relation.ispartofseries Bank of Finland Research Discussion Papers
dc.rights https://helda.helsinki.fi/bof/copyright
dc.subject euroalue
dc.subject EMU
dc.subject lähentyminen
dc.subject inflaatio
dc.subject tuottavuus
dc.subject ERM
dc.subject hinnat
dc.subject valuuttakurssit
dc.subject mallit
dc.subject avoin talous
dc.subject talouskasvu
dc.subject uudet EU-maat
dc.title Productivity differentials and external balance in ERM II
dc.type Sarjajulkaisu
dc.identifier.urn URN:NBN:fi:bof-201501291026
dc.series.name Bank of Finland Research Discussion Papers
dc.series.year 2005
dc.series.number 7/2005
dc.series.sortingnumber 0007
dc.date.publication 2.3.2005

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