Working Paper No. 668

Producer Prices in the Transition to a Common Currency

Published: September 22, 2006Pages: 48Keywords: Producer prices; Relative prices; Price convergence; Euro, Balassa-SamuelsonJEL-codes: E31; E44; F15; F23; G34

Producer Prices in the Transition to a Common Currency Niclas Andrén and Lars Oxelheim


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.

 

Lars Oxelheim

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