32 Pages Posted: 23 May 2011
Date Written: June 2004
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: 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