Poland: EMU and prices in Poland - analysis of the impact of accession to the euro area on the comparative price level
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.
National Bank of Poland