Reassessing Price-Competitiveness Indicators of the Four Largest Euro-Area Countries and of Their Main Trading Partners

Abstract

This paper provides new Bank of Italy indicators of price competitiveness for 62 countries. We refreshed the approach adopted by the Bank in the 1990s but later discontinued in 2005 due to the cumbersome statistical requirements in order to accommodate the significant extension of the original geographical coverage. Thanks to progress made in data availability, we were able to update the weighting system to 2009-11 and take into account competitive pressures from local producers in all the outlet markets while keeping the same vast geographical coverage. The new indicators show that the developments in price competitiveness since 1999 in the four largest euro-area countries have been slightly more favorable than those gauged by the current measures. However, the competitiveness gap in 2014 vis-à-vis Germany remained unchanged in Italy and Spain, while it increased marginally in France. The cumulative trend for 1999-2014 in France, Germany and Spain was more favorable vis-à-vis euro-area countries than with respect to the others; no significant difference was recorded in Italy.

Keywords: price competitiveness, real effective exchange rates, trade weights, local producer competition

JEL Classification: F10, F30, F31