Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession

44 Pages Posted: 11 Sep 2002

See all articles by Kalina Dimitrova

Kalina Dimitrova

Bulgarian National Bank

Nikolay Nenovsky

Bulgarian National Bank

Date Written: July 2002

Abstract

The importance of analysing inflation sources and dynamics in Bulgaria is imposed by (i) the long run process of price and inflation convergence to the Euro area and (ii) by the Currency Board operating in the country. In this study we make an attempt to estimate Balassa - Samuelson (BS) effect in Bulgaria (after the introduction of the Currency Board). The BS explanation of inflation (or dual inflation) has acquired both academic recognition and popularity in practice in the recent years. The results of our empirical estimation do not provide a robust verification of the existence of BS effect in spite of the observed prerequisites and the accompanying economic indicators interrelations. Actually there are several factors that interfere with the BS effect lying in the wage convergence process in both sectors and others that influence productivity developments in the sectors. This prompts that the price movement in the country has other driving motions - above all wage setting and incomplete price liberalization, other factors productivity, imported inflation (pass trough) and inflation generated by the temporary gaps between money demand and money supply.

Keywords: inflation, currency board, EU accession, Bulgaria

JEL Classification: C22, E24, E42, F15

Suggested Citation

Dimitrova, Kalina and Nenovsky, Nikolay, Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession (July 2002). Available at SSRN: https://ssrn.com/abstract=322161 or http://dx.doi.org/10.2139/ssrn.322161

Kalina Dimitrova (Contact Author)

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
Bulgaria

Nikolay Nenovsky

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
Bulgaria
+ 359 2 9145 1239 (Phone)
+ 359 2 980 24 25 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
102
Abstract Views
1,118
rank
324,812
PlumX Metrics