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Discussion Paper Details

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Title: Productivity, Tradability and the Long-Run Price Puzzle

Author(s): Paul R Bergin, Reuven Glick and Alan M. Taylor

Publication Date: July 2004

Keyword(s): great divergence, real exchange rate and Ricardo-Harrod-Balassa-Samuelson effect

Programme Area(s): International Macroeconomics

Abstract: Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higher price levels than poorer countries, a stylized fact usually attributed to the ?Balassa-Samuelson? effect. But looking back 50 years, or more, this effect virtually disappears from the data. What is often assumed to be a universal property is actually quite specific to recent times. What might explain this historical pattern? We adopt a framework where goods are differentiated by tradability and productivity. A model with monopolistic competition, a continuum-of-goods, and endogenous tradability allows for theory and history to be consistent for a wide range of underlying productivity shocks.

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Bibliographic Reference

Bergin, P, Glick, R and Taylor, A. 2004. 'Productivity, Tradability and the Long-Run Price Puzzle'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4494