The Behavior of Nontradable-Goods Prices In Europe: Evidence and Interpretation

This paper examines the evolution of the relative price between tradable and nontradable goods in a group of European countries. A model of an open economy is used to analyze different factors that can account for an increase in the relative price of nontradable goods. These factors are (a) faster technological progress in the tradable goods sector, (b) demand shifts toward nontradable goods, and (c) real wage pressures. the relevance of these factors is analyzed empirically for France, Germany, Italy, Spain, and the United Kingdom.