Productivity, Tradability, and the Long-Run Price Puzzle

32 Pages Posted: 23 May 2011  

Paul R. Bergin

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Reuven Glick

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies

Alan M. Taylor

University of California, Davis - Department of Economics; University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2004

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 fifty 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.

Suggested Citation

Bergin, Paul R. and Glick, Reuven and Taylor, Alan M., Productivity, Tradability, and the Long-Run Price Puzzle (June 2004). NBER Working Paper No. w10569. Available at SSRN: https://ssrn.com/abstract=1847346

Paul R. Bergin (Contact Author)

University of California, Davis - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Reuven Glick

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies ( email )

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Alan M. Taylor

University of California, Davis - Department of Economics ( email )

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HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

University of Virginia - Department of Economics ( email )

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HOME PAGE: http://people.virginia.edu/~amt7u

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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