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Labor market institutions and the business cycle - unemployment rigidities vs. real wage rigidities

Author

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  • Abbritti, Mirko
  • Weber, Sebastian

Abstract

This paper investigates the importance of labour market institutions for inflation and unemployment dynamics. Using the New Keynesian framework we argue that labour market institutions should be divided into those institutions that cause Unemployment Rigidities (UR) and those that cause Real Wage Rigidities (RWR). The two types of institutions have opposite effects and their interaction is crucial for the dynamics of inflation and unemployment. We estimate a panel VAR with deterministically varying coefficients and find that there is a profound difference in the responses of unemployment and inflation to shocks under different constellations of the labor market. JEL Classification: E32, E24, E52

Suggested Citation

  • Abbritti, Mirko & Weber, Sebastian, 2010. "Labor market institutions and the business cycle - unemployment rigidities vs. real wage rigidities," Working Paper Series 1183, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20101183
    Note: 2641914
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1183.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycle; labor market search; monetary policy; real wage rigidity; unemployment;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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