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The Unemployment Inflation Trade-Off in the Euro Area

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  • Linzert, Tobias

    (European Central Bank)

Abstract

This paper analyzes the relationship between unemployment and wage inflation for 10 of the euro area countries. The combination of low wage inflation and high unemployment in Europe is usually attributed to a rise in the natural rate of unemployment. Using a panel data approach, this paper models directly the specific structural determinants of the natural rate of unemployment that may account for a changing pattern in the unemployment inflation trade-off. Moreover, it analyzes whether the responsiveness of wages crucially depends on the level of inflation and the level of unemployment. This allows to detect possible downward rigidity of wages and grease or sand effects of positive levels of inflation.

Suggested Citation

  • Linzert, Tobias, 2005. "The Unemployment Inflation Trade-Off in the Euro Area," IZA Discussion Papers 1699, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1699
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    1. repec:zbw:bofrdp:2005_025 is not listed on IDEAS
    2. Christoffel, Kai & Linzert, Tobias, 2005. "The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics," IZA Discussion Papers 1896, Institute of Labor Economics (IZA).
    3. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers 5, Aboa Centre for Economics.
    4. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers 25/2005, Bank of Finland.
    5. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Bank of Finland Research Discussion Papers 25/2005, Bank of Finland.

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    More about this item

    Keywords

    Phillips Curve; unemployment; panel analysis;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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