Price Competitiveness in the European Monetary Union: A Decomposition of Inflation Differentials based on the Leontief Input-Output Price Model for the Period 2000 to 2014

Eder, Andreas and Koller, Wolfgang and Mahlberg, Bernhard (2019): Price Competitiveness in the European Monetary Union: A Decomposition of Inflation Differentials based on the Leontief Input-Output Price Model for the Period 2000 to 2014.

Abstract

This paper studies the persistent producer price inflation differentials within the European Monetary Union. By applying a decomposition procedure within the input-output framework, the drivers of sectoral producer price inflation in a representative sample of member states are re-vealed. We find that in the pre-crisis period (2001-2008) the inflation differentials in manufactur-ing and market services of all countries vis-à-vis Germany were consistently positive resulting in a loss of price competitiveness for all economies. Manufacturing and market service sectors of many countries continued to lose price competitiveness, though to a lesser extent, also during the crisis period (2009-2014). We observe that differences in unit labour cost developments across countries constitute an important driver, especially in the pre-crisis period. Other drivers, such as import costs, intermediate input costs and operating surpluses also contribute, in particular dur¬ing the crisis period.

• Item Type: MPRA Paper
• Language: English
• Keywords: European Integration; Producer Price Inflation; Real Exchange Rates; Gross Output Price Deflators; National Accounts
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D57 - Input-Output Tables and Analysis; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; F - International Economics > F1 - Trade > F15 - Economic Integration; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries

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