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The Synchronisation of European Labour Markets: An Analysis Using Aggregate Philips Curves

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  • Nicolien Schermer
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    Abstract

    This paper investigates the position of the Phillips curve in a single currency area, when the countries have different levels of unemployment. We will use the aggregation hypothesis to show that allowing for the dispersion of unemployment is essential to quantifying the level of inflation corresponding to any given unemployment rate. Next, we point out that the EMU countries have attained increasingly similar unemployment rates since the creation of the single market and the adoption of the single currency. This observed synchronisation in countries' labour markets in the 1990s has reduced the effect of the aggregation hypothesis. This implies that the level of inflation is now lower for any given level of unemployment, which eases the choices of monetary policy makers.

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    File URL: http://www.dnb.nl/binaries/Working%20Paper%2076_tcm46-146733.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 076.

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    Date of creation: Dec 2005
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    Handle: RePEc:dnb:dnbwpp:076

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    Keywords: aggregation hypothesis; Phillips curve; EMU; labour markets.;

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    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
    2. Fabiani, Silvia & Morgan, Julian, 2003. "Aggregation and euro area Phillips curves," Working Paper Series 0213, European Central Bank.
    3. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
    4. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
    5. Artis, Michael J & Zhang, Wenda, 1999. "Further Evidence on the International Business Cycle and the ERM: Is There a European Business Cycle?," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 120-32, January.
    6. Jakob de Haan & Robert Inklaar & Olaf Sleijpen, 2002. "Have Business Cycles Become More Synchronized?," Journal of Common Market Studies, Wiley Blackwell, vol. 40(1), pages 23-42, 03.
    7. Morgan, Julian & Mourougane, Annabelle, 2001. "What can changes in structural factors tell us about unemployment in Europe?," Working Paper Series 0081, European Central Bank.
    8. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
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