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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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References

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  1. Favero Carlo A. & Milani Fabio, 2005. "Parameter Instability, Model Uncertainty and the Choice of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-33, February.
  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, vol. 2001(2), pages 171-216.
  3. Crosby, M. & Olekalns, N., 1997. "Inflation, Unemployment and the Nairu in Australia," Department of Economics - Working Papers Series 543, The University of Melbourne.
  4. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
  5. Ramón María-Dolores, 2002. "Asymmetries in the Cyclical Effects of Monetary Policy on Output: Some European Evidence," Working Papers 02-04, Asociación Española de Economía y Finanzas Internacionales.
  6. Jan Kakes & Sitikantha Pattanaik, 2000. "The transmission of monetary shocks in the euro area: a V AR analysis based on euro-wide data," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(213), pages 171-186.
  7. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
  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. Zacharias Psaradakis & Nicola Spagnolo, 2002. "On the Determination of the Number of Regimes in Markov-Switching Autoregressive Models," Computing in Economics and Finance 2002 83, Society for Computational Economics.
  10. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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