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Aggregation and euro area Phillips curves

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Abstract

This paper examines the issue of the impact of aggregation in the empirical analysis of euro area labour markets. A Phillips Curve describing the adjustment of unit labour costs is estimated at the national and aggregate level for the 5 largest euro area countries. Potential sources of aggregation bias are investigated - such as differences in parameter coefficients and a lack of correlation in the independent variables across countries - as well as the potentially offsetting statistical averaging effect. Finally the out-of-sample forecasting performance of both approaches is evaluated. The results point to some limited advantages of analysing wage developments at the national rather than at the area-wide level. The paper concludes that if major advantages in undertaking national analysis do exist, they are likely to arise from the ability to develop country-specific structures for the Phillips Curves and not from aggregation biases that emerge when a common structure is used. JEL Classification: C52; C53; E24; J30.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 213.

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Length: 33 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030213

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Keywords: Euro area; Phillips curve; wage growth.;

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References

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  1. Silvia Fabiani & Ricardo Mestre, 2004. "A system approach for measuring the euro area NAIRU," Empirical Economics, Springer, vol. 29(2), pages 311-341, 05.
  2. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics 0404019, EconWPA, revised 24 Apr 2004.
  3. Gabriel Fagan & JÊrÆme Henry, 1998. "Long run money demand in the EU: Evidence for area-wide aggregates," Empirical Economics, Springer, vol. 23(3), pages 483-506.
  4. Ricardo Mestre & Silvia Fabiani, 2000. "Alternative measures of the NAIRU in the Euro area: estimates and assessment," Working Paper Series 17, European Central Bank.
  5. Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
  6. Silvia Fabiani & Alberto Locarno & Gian Paolo Oneto & Paolo Sestito, 1997. "NAIRU: Incomes Policy and Inflation," OECD Economics Department Working Papers 187, OECD Publishing.
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Citations

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Cited by:
  1. Dieppe, Alistair & Henry, Jerome, 2004. "The euro area viewed as a single economy: how does it respond to shocks?," Economic Modelling, Elsevier, vol. 21(5), pages 833-875, September.
  2. Nicolien Schermer, 2005. "The Synchronisation of European Labour Markets: An Analysis Using Aggregate Philips Curves," DNB Working Papers 076, Netherlands Central Bank, Research Department.
  3. Heather Anderson & Mardi Dungey & Denise R. Osborn & Farshid Vahid, 2007. "Constructing Historical Euro Area Data," CAMA Working Papers 2007-18, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Eilev S. Jansen, 2004. "Modelling inflation in the Euro Area," Working Paper 2004/10, Norges Bank.
  5. Guido Ascari & Neil Rankin, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series 346, European Central Bank.
  6. Thomas Warmedinger, 2004. "Import prices and pricing-to-market effects in the euro area," Working Paper Series 299, European Central Bank.
  7. De Grauwe, Paul & Senegas, Marc-Alexandre, 2006. "Monetary policy design and transmission asymmetry in EMU: Does uncertainty matter?," European Journal of Political Economy, Elsevier, vol. 22(4), pages 787-808, December.
  8. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa: Eine Bestandsaufnahme," University of Regensburg Working Papers in Business, Economics and Management Information Systems 389, University of Regensburg, Department of Economics.
  9. Mayes , David G. & Virén , Matti, 2004. "Asymmetries in the Euro area economy," Research Discussion Papers 9/2004, Bank of Finland.
  10. Marc-Alexandre Senegas & Paul De Grauwe, 2004. "Transmission parameter uncertainty and heterogeneity in EMU: which federal monetary policy for the ECB?," Money Macro and Finance (MMF) Research Group Conference 2003 86, Money Macro and Finance Research Group.
  11. Franz, Wolfgang, 2003. "Will the (German) NAIRU Please Stand up?," ZEW Discussion Papers 03-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Masso, Jaan & Staehr, Karsten, 2005. "Inflation dynamics and nominal adjustment in the Baltic States," Research in International Business and Finance, Elsevier, vol. 19(2), pages 281-303, June.
  13. Yesim Kustepeli, 2005. "A comprehensive short-run analysis of a (possible) Turkish Phillips curve," Applied Economics, Taylor and Francis Journals, vol. 37(5), pages 581-591.

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