Poland: EMU and prices in Poland - analysis of the impact of accession to the euro area on the comparative price level
Description:
The study aimed at determining the impact on prices of adopting the euro in Poland. Unlike the majorty of studies dealing with euro-induced short-lived inflation shocks, the author attempted to shed light on longer-term developments in prices following EMU accession.
A model of price level determination was set up based on pricing mechanism in segmented markets where prices include mark-ups over costs. Relative price levels in individual EU27 countries were explained by a set of factors that can be grouped in several categories:
- Demand-side factors related to the catching-up process of lower income countries (e.g. GDP, wages)
- Supply-side factors such as levels of taxation or transport costs
- Factors related to competition in individual markets (e.g. import openness)
- The EU-factor (binary variable related to the EU accession)
- Exchange rate and euro adoption
The model of price level determination used data on the comparative price levels for 27 EU countries betweem 1999 and 2006/7. A dummy variable for euro countries was included, which allowed to measure the impact of the eur on the price levels in a multi-variable environment controlling all crucial macroeconomic elements that could potential influence prices. The results of this experiment isolated the effects of the euro, which served to provide a tentative answer to the impact on the Polish domestic price levels to be expected were Poland to joint the EMU.
The report was produced by Przemyslaw Wozniak and presented during a workshop at the National Bank of Poland. Dr. Wozniak also presented the outcome of the project during a Policy Research Seminar held at CASE on 19 November 2008.
Sponsor:
National Bank of Poland
