Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2004:16: Differences in Relative Prices in the EU

Sirly Palenmark
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Sirly Palenmark: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Price levels differ considerably between the member states of the EU. This paper examines what causes these price differences. Disaggregated price level indexes for 13 capital cities in the EU are used in order to investigate differences in relative prices during the 1990s. It is found that such variables as physical distance, tax levels, participation in the EMU and income levels explain differences in price levels.

Keywords: Relative prices; Purchasing Power Parity; Law of One Price

JEL-codes: E31; F41

21 pages, May 21, 2004

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