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Inflation Adjustment and Labour Market Structures: Evidence from a Multi-Country Study

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Author Info

  • Nunziata, Luca

    ()
    (University of Padova)

  • Bowdler, Christopher

    ()
    (Nuffield College, Oxford)

Abstract

An empirical analysis of the impact of labour market structures on the response of inflation to macroeconomic shocks is presented. Results based on a 20 country panel show that if labour market coordination is high, the effect on inflation of movements in unemployment, import prices, tax rates and productivity is dampened, both on impact and dynamically. In contrast, monopoly power in labour supply, measured by the percentage unionisation of the workforce, appears to amplify the response of inflation to its reduced form determinants. These findings are attributed to the behaviour of wages following movements in demand- and supply-side conditions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1510.

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Length: 27 pages
Date of creation: Mar 2005
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2007, 109 (3), 619-642
Handle: RePEc:iza:izadps:dp1510

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Keywords: inflation; input price shocks; labour market coordination; trade union density;

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References

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  4. L. Nunziata, 2002. "Institutions and Wage Determination: A Multi-Country Approach," Working Papers 433, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Boschen, John F. & Weise, Charles L., 2004. "Does the dynamic time consistency model of inflation explain cross-country differences in inflations dynamics?," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 735-759, September.
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  9. Alogoskoufis, George, 1991. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," CEPR Discussion Papers 503, C.E.P.R. Discussion Papers.
  10. Belot, Michèle & van Ours, Jan C, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," CEPR Discussion Papers 2492, C.E.P.R. Discussion Papers.
  11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199279173, October.
  12. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
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  14. repec:rus:hseeco:181565 is not listed on IDEAS
  15. John C. Driscoll & Steinar Holden, 2004. "Fairness and Inflation Persistence," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(2-3), pages 240-251, 04/05.
  16. Burdekin, Richard C K & Siklos, Pierre L, 1999. "Exchange Rate Regimes and Shifts in Inflation Persistence: Does Nothing Else Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(2), pages 235-47, May.
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Citations

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Cited by:
  1. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.
  2. Cavallero, Alessandro, 2011. "The convergence of inflation rates in the EU-12 area: A distribution dynamics approach," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 341-357, June.
  3. Fabio Rumler & Johann Scharler, 2011. "Labor Market Institutions And Macroeconomic Volatility In A Panel Of Oecd Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(3), pages 396-413, 07.
  4. Hanan Morsy & Florence Jaumotte, 2012. "Determinants of Inflation in the Euro Area," IMF Working Papers 12/37, International Monetary Fund.
  5. Christopher Bowdler & Luca Nunziata, 2005. "Trade union density and inflation performance: evidence from OECD panel data," "Marco Fanno" Working Papers 0009, Dipartimento di Scienze Economiche "Marco Fanno".
  6. Fatih Macit, 2010. "The Role of Labor Market Institutions on Wage and Inflation Dynamics: Empirical Evidence from OECD Economies," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(1), pages 64-77, March.
  7. Bjørnstad, Roger & Kalstad, Kjartan Øren, 2010. "Increased price markup from union coordination: OECD panel evidence," Economics Discussion Papers 2010-13, Kiel Institute for the World Economy.
  8. Stefano Gnocchi & Evi Pappa, 2009. "Do labor market rigidities matter for business cycles? Yes they do," Working Papers 411, Barcelona Graduate School of Economics.
  9. D'Adamo, Gaetano & Rovelli, Riccardo, 2013. "Labor Market Institutions and the Response of Inflation to Macro Shocks in the EU: A Two-Sector Analysis," IZA Discussion Papers 7616, Institute for the Study of Labor (IZA).
  10. 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.
  11. Moretti, Laura, 2014. "The determinants of inflation differentials in the euro area," CFS Working Paper Series 451, Center for Financial Studies (CFS).

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