Disinflation and unemployment in the euro area : A SVAR-based analysis

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Disinflation and unemployment in the euro area : A SVAR-based analysis

Author Info

Fève, P.
Matheron, J.
Sahuc, J-G.

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Abstract

The present paper investigates the dynamic effects of disinflation shocks for a number of real macroeconomic variables in the euro area. Using structural VARs, we identify disinflation shocks as the only shocks that can exert a long--run effect on inflation as well as other nominal variables cointegrating with inflation. These shocks are found to generate large recessionary effects, notably when it comes to investment, and triggers a persistent rise in unemployment and in the real interest rate. The analysis is complemented by computing inefficiency measures on goods and labor markets. We show that, after a disinflation shock, inefficiencies in the labor market seem to prevail. These conclusions are robust to modifications of our baseline identification scheme.

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Publisher Info
Paper provided by Banque de France in its series Documents de Travail with number 247.

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Length: 19 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bfr:banfra:247

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-10-24 (All new papers)
NEP-CBA-2009-10-24 (Central Banking)
NEP-EEC-2009-10-24 (European Economics)
NEP-MAC-2009-10-24 (Macroeconomics)

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