IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • Merkl, Christian

    ()

    (University of Erlangen-Nuremberg)

  • Schmitz, Tom

    ()

    (HEC Paris)

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.

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

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:


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. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  2. Bertola, Giuseppe & Koeniger, Winfried, 2007. "Consumption smoothing and income redistribution," European Economic Review, Elsevier, vol. 51(8), pages 1941-1958, November.
  3. Manuel Toledo & Jose I. Silva, 2005. "Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment," 2005 Meeting Papers 775, Society for Economic Dynamics.
  4. 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, vol. 52(5), pages 687-709, November.
  5. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  6. Smets, Frank & Wouters, Raf, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Series 0391, European Central Bank.
  7. Olivier J. Blanchard & Jordi Galí, 2007. "The macroeconomic effects of oil price shocks: Why are the 2000s so different from the 1970s?," Economics Working Papers 1045, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2008.
  8. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  9. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," Kiel Working Papers 1263, Kiel Institute for the World Economy.
  10. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  11. Tine Dhont & Freddy Heylen, 2008. "Why Do Europeans Work (Much) Less? It Is Taxes And Government Spending," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 197-207, 04.
  12. Beck, Thorstein & Lundberg, Mattias & Majnoni, Giovanni, 2001. "Financial intermediary development and growth volatility : do intermediaries dampen or magnify shocks?," Policy Research Working Paper Series 2707, The World Bank.
  13. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers 5656, C.E.P.R. Discussion Papers.
  14. Ralf A. Wilke, 2005. "New Extimates of the Duration and Risk of Unemployment for West-Germany," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(2), pages 207-237.
  15. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  16. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.
  17. Fabio RUMLER & Johann SCHARLER, . "Labor Market Institutions and Macroeconomic Volatility in a Panel of OECD Countries," EcoMod2008 23800120, EcoMod.
  18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  19. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  20. Yu-Fu Chen & Michael Funke, 2007. "Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies," Dundee Discussion Papers in Economics 207, Economic Studies, University of Dundee.
  21. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
  22. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  23. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
  24. Mirko Abbritti & Andreas Mueller, 2007. "Asymmetric Labor Market Institutions in the EMU: Positive and Normative Implications," IHEID Working Papers 02-2009, Economics Section, The Graduate Institute of International Studies, revised Apr 2009.
  25. Faia, Ester, 2007. "Ramsey monetary policy with labour market frictions," Working Paper Series 0707, European Central Bank.
  26. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  27. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  28. Mirko Abbritti; Sebastian Weber, 2008. "Labor Market Rigidities and the Business Cycle: Price vs. Quantity Restricting Institutions," IHEID Working Papers 01-2008, Economics Section, The Graduate Institute of International Studies, revised Jan 2008.
  29. repec:ner:tilbur:urn:nbn:nl:ui:12-3125497 is not listed on IDEAS
  30. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  31. Rother, Philipp, 2004. "Fiscal policy and inflation volatility," Working Paper Series 0317, European Central Bank.
  32. Grüner, Hans Peter, 2010. "Why EMU is not a failure," European Journal of Political Economy, Elsevier, vol. 26(1), pages 1-11, March.
  33. 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.
Full references (including those not matched with items on IDEAS)

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

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.