Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 668: Producer Prices in the Transition to a Common Currency

Niclas Andrén () and Lars Oxelheim ()
Additional contact information
Niclas Andrén: Institute of Economic Research, Postal: Lund University, P.O. box 7080, SE-220 07 Lund, Sweden
Lars Oxelheim: Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We analyze producer price developments in the transition from a national exchange rate regime to a monetary union. The focus is on the European Economic and Monetary Union (EMU). Stylized facts witness about an exploding gaps in producer-price inflation during the years immediately following the completion of the EMU. Price convergence is found to be an important driver throughout the entire euro period (1999-2005), but with no significant differences in speed compared to the pre euro period. Productivity growth had its primary effect in the first years and effective exchange-rate changes in the later years of the euro period.

Keywords: Producer prices; Relative prices; Price convergence; Euro; Balassa-Samuelson

JEL-codes: E31; E44; F15; F23; G34

48 pages, September 22, 2006

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