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Inflation and unemployment, new insights during the EMU accession

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  • Combes, Jean-Louis
  • Lesuisse, Pierre

Abstract

In the process of EU integration, toward the Eurozone (EA) accession, we try to understand, how changes in exchange rate regimes, attributed to the switch through the ERM-II and to the EA accession, influence the dynamic between inflation and unemployment, that is, swings on the Phillips curve coefficient. We look at a panel of EA countries, before and after their EA entry, over the last twenty years, using a recent work from McLeay and Tenreyro (2020), to clarify the impact of losing the monetary autonomy. Accession to the Eurozone leads to a non-significant inflation/unemployment relationship. We link this result to the fact that the small economies of the Eurozone do not have sufficient weight to influence the single monetary policy. This is corroborated by the fact that within the Eurozone, what we call the “economic leaders” maintain a significant trade-off between inflation and unemployment.

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  • Combes, Jean-Louis & Lesuisse, Pierre, 2022. "Inflation and unemployment, new insights during the EMU accession," International Economics, Elsevier, vol. 172(C), pages 124-142.
    • Handle: RePEc:eee:inteco:v:172:y:2022:i:c:p:124-142
    DOI: 10.1016/j.inteco.2022.09.004
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    More about this item

    Keywords

    Phillips curve; European monetary union; Panel;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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