This paper seeks to provide a comprehensive overview of the long-term factors that explain divergent price levels across developed and emerging European countries. We provide stylised facts about the structural factors that influence market and non-market-based service, house and goods prices. The stylised facts show that there is much more behind differences in price levels among European countries than the much heralded Balassa-Samuelson effect and that prices other than those of market services are potential determinants of price levels and inflation rates in emerging Europe. Finally, we sketch out the possible mismatches between price level convergence and inflation rates.
Angeloni, I. and Ehrmann, M. (2004), `Euro Area inflation differentials', ECB Working Paper No. 388.
2.
Backé, P., Fidrmuc, J., Reininger, T. and Schardax, F. (2002), `Price dynamics in Central and Eastern European EU accession countries', Oesterreichische Nationalbank Working Paper No. 61.
3.
Balassa, B. (1964), `The purchasing-power-parity doctrine: a reappraisal' , Journal of Political Economy, 72(6), pp. 584-96.
4.
Bergstrand, J.H. (1991), `Structural determinants of real exchange rates and national price levels: some empirical evidence', American Economic Review, 81 (1), pp. 325-34.
5.
Brùha, J. and Podpiera, J. (2007), `Transition economy convergence in a two-countrymodel:implicationsformonetary integration', ECB Working Paper No. 740.
6.
Cihák, M. and Holub, T. (2001), `Convergence of relative prices and inflation in Central and Eastern Europe', IMF Working Paper No. 124.
7.
-( 2003), `Price convergence to the EU: what do the 1999 ICP data tell us?', Czech National Bank Working Paper Series No. 2.
8.
-( 2005), `Price convergence in EU-accession countries: evidence from the international comparison', Economie Internationale , 102(2), pp. 59-82.
9.
Égert, B., Halpern, L. and MacDonald, R. (2006), `Equilibrium exchange rates in transition economies: taking stock of the issues', Journal of Economic Surveys, 20(2), pp. 257-324.
10.
Égert, B., Lommatzsch, K. and Lahrèche-Révil, A. (2006), `Real exchange rates in small open OECD and transition economies: comparing apples with oranges?' , Journal of Banking and Finance, 30(12), pp. 3393-406.
11.
Égert, B. and Mihaljek, D. (2007), `Determinants of house prices in Central and Eastern Europe', Bank of International Settlements working paper No 236.
12.
Égert, B., Ritzberger-Gruenwald, D. and Silgoner, M.A. (2004), `Inflation differentials in Europe: past experience and future prospects', Monetary Policy and the Economy, Austrian Central Bank, issue 1, pp. 47-72.
13.
European Central Bank (2003), `Inflation differentials in the Euro Area: potential causes and policy implications' , http://www.ecb.int/pub/pdf/other/inflationdifferentialreporten.pdf .
14.
Hammermann, F. (2007), `Nonmonetary determinants of inflation in Romania: a decomposition', Kiel Working Paper No. 1322.
15.
Hofmann, B. and Remsperger, H. (2005), Inflation differentials among the Euro Area countries: potential causes and consequences', Journal of Asian Economics , 6(3), pp. 403-19.
16.
Honohan, P. and Lane, P. (2004), `Exchange rates and inflation under EMU: an update' , CEPR Discussion Paper No. 4583.
17.
Lünnemann, P. and Mathä, T.Y. (2005), `Regulated and services prices and inflation persistence' , ECB Working Paper No. 466.
18.
Samuelson, P. (1964), `Theoretical notes on trade problems', Review of Economics and Statistics, 46(2), pp. 145-54.
19.
Zavoico, B. (1995), `A brief note on the inflationary process in transition economies', IMF, mimeo.
