Advanced Search
MyIDEAS: Login to save this paper or follow this series

Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment

Contents:

Author Info

  • Merkl, Christian

    ()
    (University of Erlangen-Nuremberg)

  • Schmitz, Tom

    ()
    (HEC Paris)

Abstract

This paper analyzes the effects of different labor market institutions on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences across member states, but labor market characteristics have remained very diverse. We use a New Keynesian model with unemployment to predict the effects of different labor market institutions on macroeconomic volatilities. In our subsequent empirical estimations, we find that higher labor turnover costs have a statistically significant negative effect on output volatility, while replacement rates have a positive effect, both of which are in line with theory. While labor market institutions have a large effect on output volatility, they do not seem to have much of an effect on inflation volatility, which can also be rationalized by our theoretical model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp4924.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4924.

as in new window
Length: 29 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: European Journal of Political Economy, 2011, 27 (1), 44-60
Handle: RePEc:iza:izadps:dp4924

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: unemployment benefits; labor turnover costs; output and inflation volatility; labor market institutions; unemployment; eurozone;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary Persistence and the Labor Market: A New Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7650, C.E.P.R. Discussion Papers.
  2. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5656, C.E.P.R. Discussion Papers.
  3. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(4), pages 1339-1382, November.
  4. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  5. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research, National Bank of Belgium 35, National Bank of Belgium.
  6. Wilke, Ralf A., 2004. "New Estimates of the Duration and Risk of Unemployment for West-Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Blanchard, Olivier J & Galí, Jordi, 2008. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6631, C.E.P.R. Discussion Papers.
  8. Snower, Dennis J. & Merkl, Christian, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," IZA Discussion Papers 2066, Institute for the Study of Labor (IZA).
  9. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  10. James S. Costain & Michael Reiter, 2003. "Business cycles, unemployment insurance and the calibration of matching models," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006.
  11. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers, Society for Economic Dynamics 460, Society for Economic Dynamics.
  12. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  13. Chen, Yu-Fu & Funke, Michael, 2008. "Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-05, Scottish Institute for Research in Economics (SIRE).
  14. Beck, Thorstein & Lundberg, Mattias & Majnoni, Giovanni, 2001. "Financial intermediary development and growth volatility : do intermediaries dampen or magnify shocks?," Policy Research Working Paper Series, The World Bank 2707, The World Bank.
  15. Tine Dhont & Freddy Heylen, 2008. "Why Do Europeans Work (Much) Less? It Is Taxes And Government Spending," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 46(2), pages 197-207, 04.
  16. Frank Smets & Raf Wouters, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Research, National Bank of Belgium 61, National Bank of Belgium.
  17. Mirko Abbritti; Sebastian Weber, 2008. "Labor Market Rigidities and the Business Cycle: Price vs. Quantity Restricting Institutions," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 01-2008, Economics Section, The Graduate Institute of International Studies, revised Jan 2008.
  18. Yu-Fu Chen & Michael Funke, 2005. "Non-Wage Labour Costs, Policy Uncertainty And Labour Demand - A Theoretical Assessment," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 52(5), pages 687-709, November.
  19. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, Elsevier, vol. 25(3), pages 311-326, September.
  20. Rumler, Fabio & Scharler, Johann, 2009. "Labor market institutions and macroeconomic volatility in a panel of OECD countries," Working Paper Series, European Central Bank 1005, European Central Bank.
  21. Faia, Ester, 2007. "Ramsey monetary policy with labour market frictions," Working Paper Series, European Central Bank 0707, European Central Bank.
  22. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6112, C.E.P.R. Discussion Papers.
  23. Nicholai Benalal & Juan Luis Diaz del Hoyo & Beatrice Pierluigi & Nikiforos Vidalis, 2006. "Output growth differentials across the euro area countries - some stylised facts," Occasional Paper Series 45, European Central Bank.
  24. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?," NBER Chapters, National Bureau of Economic Research, Inc, in: International Dimensions of Monetary Policy, pages 373-421 National Bureau of Economic Research, Inc.
  25. Thomas Lubik & Michael Krause, 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 504, The Johns Hopkins University,Department of Economics.
  26. Grüner, Hans Peter, 2010. "Why EMU is not a failure," European Journal of Political Economy, Elsevier, Elsevier, vol. 26(1), pages 1-11, March.
  27. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  28. Rother, Philipp, 2004. "Fiscal policy and inflation volatility," Working Paper Series, European Central Bank 0317, European Central Bank.
  29. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
  30. Yu-Fu Chen & Michael Funke, 2007. "Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 207, Economic Studies, University of Dundee.
  31. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  32. Bertola, Giuseppe & Koeniger, Winfried, 2007. "Consumption smoothing and income redistribution," European Economic Review, Elsevier, Elsevier, vol. 51(8), pages 1941-1958, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Campolmi, Alessia & Faia, Ester, 2011. "Labor market institutions and inflation volatility in the euro area," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(5), pages 793-812, May.
  2. Tim Schwarzmüller & Nikolai Stähler, 2013. "Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(4), pages 437-471, November.
  3. Hermann Gartner & Christian Merkl & Thomas Rothe, 2009. "They Are Even Larger! More (on) Puzzling Labor Market Volatilities," Kiel Working Papers, Kiel Institute for the World Economy 1545, Kiel Institute for the World Economy.
  4. Abbritti, Mirko & Weber, Sebastian, 2010. "Labor market institutions and the business cycle Unemployment rigidities vs. real wage rigidities," Working Paper Series, European Central Bank 1183, European Central Bank.
  5. Bernard Bartels, 2009. "The Monetary Transmission Mechanism in the Euro Area: A VAR-Analysis for Austria and Germany," Kiel Advanced Studies Working Papers, Kiel Institute for the World Economy 452, Kiel Institute for the World Economy.
  6. Christian Merkl, 2009. "The Inflation-Output Tradeoff: Which Type of Labor Market Rigidity Is to Be Blamed?," Kiel Working Papers, Kiel Institute for the World Economy 1495, Kiel Institute for the World Economy.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4924. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.