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The Unemployment Inflation Trade-Off in the Euro Area

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Author Info
Tobias Linzert () (European Central Bank and IZA Bonn)

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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 tradeoff. 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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1699.

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Length: 42 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1699

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Related research
Keywords: Phillips Curve; unemployment; panel analysis;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers 5, Aboa Centre for Economics. [Downloadable!]
  2. Virén , Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers 25/2005, Bank of Finland. [Downloadable!]
  3. Kai Christoffel & Tobias Linzert, 2005. "The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics," IZA Discussion Papers 1896, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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