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Downward wage rigidity in Europe: A new flexible parametric approach and empirical results

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  • Behr, Andreas
  • Pötter, Ulrich
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    Abstract

    We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1994 and 2001. The data base used throughout is the User Data Base (UDB) of the European Community Household Panel (ECHP). The proposed approach is based on the very flexible generalized hyperbolic distribution which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. --

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    Paper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series Beiträge zur angewandten Wirtschaftsforschung with number 14.

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    Date of creation: 2005
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    Handle: RePEc:zbw:cawmbg:14

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    1. Thomas Beissinger & Christoph Knoppik, 2006. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 275/2006, Department of Economics, University of Hohenheim, Germany.
    2. Holden, Steinar & Wulfsberg, Fredrik, 2004. "Downward Nominal Wage Rigidity in Europe," Memorandum 08/2004, Oslo University, Department of Economics.
    3. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
    4. Anna Iara & Iulia Traistaru, 2004. "How Flexible are Wages in EU Accession Countries?," ERSA conference papers ersa04p191, European Regional Science Association.
    5. Louis N. Christofides & Man Tuen Leung, 2002. "Nominal Wage Rigidity in Contract Data: A Parametric Approach," University of Cyprus Working Papers in Economics 0210, University of Cyprus Department of Economics.
    6. Agell, Jonas & Lundborg, Per, 1999. "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," Working Paper Series 1999:2, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. Ole Eiler Barndorff-Nielsen & Robert Stelzer, 2005. "Absolute Moments of Generalized Hyperbolic Distributions and Approximate Scaling of Normal Inverse Gaussian Lévy Processes," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics & Finnish Statistical Society & Norwegian Statistical Association & Swedish Statistical Association, vol. 32(4), pages 617-637.
    8. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
    9. Bauer, Christian, 2000. "Value at risk using hyperbolic distributions," Journal of Economics and Business, Elsevier, vol. 52(5), pages 455-467.
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