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

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Author Info
Nicolien Schermer
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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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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Related research
Keywords: aggregation hypothesis; Phillips curve; EMU; labour markets.;

Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
F15 - International Economics - - Trade - - - Economic Integration

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
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  3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  4. Julian Benedict Morgan & Annabelle Mourougane, 2001. "What can changes in structural factors tell us about unemployment in Europe?," Working Paper Series 081, European Central Bank. [Downloadable!]
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  5. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Jakob de Haan & Robert Inklaar & Olaf Sleijpen, 2002. "Have Business Cycles Become More Synchronized?," Journal of Common Market Studies, Blackwell Publishing, vol. 40(1), pages 23-42, 03. [Downloadable!] (restricted)
  7. Julian Benedict Morgan & Silvia Fabiani, 2003. "Aggregation and euro area Phillips curves," Working Paper Series 213, European Central Bank. [Downloadable!]
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