Work detail

Price Level Convergence and Real Exchange Rate Determinants in the New Member States of the European Union

Author: Mgr. Andrea Pospíšilová
Year: 2013 - summer
Leaders: doc. Mgr. Tomáš Holub Ph.D.
Work type: EEI & EP
Language: English
Pages: 85
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance.
Abstract: Di erences in price levels as well as in
ation rates among countries have been
subject of discussion for a long time. More than the actual levels, however, the
question of determinants of price levels in time and a possible convergence is key
for the new member states with respect to the Maastricht criteria. The dynamics
of price levels is crucial, and many suggestions have been put forward to explain
the observed trends and changes. This thesis focuses on the determinants of
relative price level, and hence real exchange rate, developments in the new member
states of the EU and employs a regression analysis to examine their change in time.
As most of the countries in focus are transition economies, structural variables
are also included among the independent variables. We nd that the Balassa-
Samuelson e ect is key to explaining real exchange rate developments as the e ect
of productivity di erential has been signi cant over the whole period examined.
However, in the recent years, marked by the onset of the crisis, other factors,
such as the structure of trade and Euro area membership, have become more


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