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



William Davidson Institute Working Paper 487

The following tables exhibit the results for the real wage rigidity index in some of
the developed countries in comparison to Bulgaria (prior and after the CB), and only in
Bulgaria by sectors produced by the pool model connecting the dynamics of the real
wages and employment after the introduction of the CB. The conclusions from the study
on Bulgaria support the hypothesis that unemployment is first and foremost a structural
phenomenon of transition and labour market liberalisation is the only alternative for an
economy with a rule-based monetary regime.

Table 1. Real wage rigidity in the developed countries and Bulgaria

Country

Estimations from the Estimations from the Estimations from the

structural      model VAR model (D(W-

VAR model (D(W-

P),DU)

(equations on wages
and prices)

P),U)

Bulgaria

Prior the CB (∞)

After the CB (6.76)

Prior the CB (∞)

After the CB (17.77)

Prior the CB (∞)

After the CB (14.30)

Belgium

0.25

2.86

1.42

Denmark

0.58

3.44

1.10

France

0.23

5.13

1.58

Germany

0.63

3.76

1.48

Ireland

0.27

2.92

1.68

Italy

0.06

4.29

1.00

Netherlands

0.25

2.11

1.52

Spain

0.52

4.20

1.94

England

0.77

3.43

1.16

Austria

0.11

4.49

0.85

Finland

0.29

9.55

1.71

Sweden

0.08

4.92

1.41

EU

0.42

4.09

1.39

USA

0.25

2.39

0.73

Japan

0.06

2.21

0.89

40



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