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The European Unemployment Gap and the Role of Monetary Policy

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  • Oreste Napolitano

    ()
    (Department of Economic Studies S. Vinci - University of Naples Parthenope)

  • Alberto Montagnoli

    ()
    (University of Stirling- Division of Economics)

Abstract

This study will shed some light on the debate on the impact of monetary policy on the labour market in Europe. The Phillips curve implies that demand-induced changes in inflation tend to lag behind movements in the unemployment rate, which means that a comparison between the actual unemployment rate and the NAIRU may be helpful in forecasting future changes in inflation. By using an unobserved component model with a Kalman filter we estimate the NAIRU for three countries in the euro area. Moreover, using a Markov switching model we investigate whether European monetary policy is responsible for these unemployment gaps and whether the interest rate is transmitted asymmetrically across countries

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1346-1358

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Handle: RePEc:ebl:ecbull:eb-10-00012

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Keywords: Monetary Policy; Unemployment Gap; Markov Switching Model;

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  1. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper, Federal Reserve Bank of Kansas City 97-13, Federal Reserve Bank of Kansas City.
  2. Laurence Boone & Claude Giorno & Mara Meacci & Dave Rae & Pete Richardson & Dave Turner, 2001. "Estimating the structural rate of unemployment for the OECD countries," OECD Economic Studies, OECD Publishing, OECD Publishing, vol. 2001(2), pages 171-216.
  3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  4. Jan Kakes & Sitikantha Pattanaik, 2000. "The transmission of monetary shocks in the euro area: a VAR analysis based on euro-wide data," MEB Series (discontinued), Netherlands Central Bank, Monetary and Economic Policy Department 2000-2, Netherlands Central Bank, Monetary and Economic Policy Department.
  5. Favero Carlo A. & Milani Fabio, 2005. "Parameter Instability, Model Uncertainty and the Choice of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 5(1), pages 1-33, February.
  6. Zacharias Psaradakis & Nicola Spagnolo, 2002. "On the Determination of the Number of Regimes in Markov-Switching Autoregressive Models," Computing in Economics and Finance 2002, Society for Computational Economics 83, Society for Computational Economics.
  7. Ramón María-Dolores, 2002. "Asymmetries in the Cyclical Effects of Monetary Policy on Output: Some European Evidence," Working Papers, Asociación Española de Economía y Finanzas Internacionales 02-04, Asociación Española de Economía y Finanzas Internacionales.
  8. Nicoletta Batini & Jennifer V. Greenslade, 2006. "Measuring the UK short-run NAIRU," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 28-49, January.
  9. Crosby, M. & Olekalns, N., 1997. "Inflation, Unemployment and the Nairu in Australia," Department of Economics - Working Papers Series, The University of Melbourne 543, The University of Melbourne.
  10. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series, European Central Bank 0091, European Central Bank.
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