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Article: Relative price determination in the medium run: the influence of wages, productivity, and international prices.
- Article from:
- Southern Economic Journal
- Article date:
- October 1, 1998
- Author:
CopyrightCOPYRIGHT 1998 Southern Economic Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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1. Introduction
Balassa (1964) and Samuelson (1964) (B-S) provide the benchmark model for the determination of long-run real exchange rates and the relative price of nontradeables. Larger productivity differentials in the tradeable goods sector relative to the nontradeable sector lead to increases in the relative price of nontradeables, unit labor costs, and real exchange rates. The B-S productivity differential model relies on three critical assumptions in the long run: labor mobility, competitive labor markets, and purchasing power parity (PPP). This work tests these assumptions for the short and medium run for France, Germany, Japan, the U.K., and the U.S., and ...