IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Labor Market Institutions and the Response of Inflation to Macro Shocks in the EU: A Two-Sector Analysis

  • D'Adamo, Gaetano

    ()

    (Universidad de Valencia)

  • Rovelli, Riccardo

    ()

    (University of Bologna)

We model empirically the role of labor market institutions in affecting the response of inflation to labor market and exchange rate shocks in the EU. We adopt a simple Phillips curve framework, treating separately the sectors producing traded and non-traded goods. Our results show that labor market institutions have a significant role in affecting cross-country differences in inflation adjustment for the "sheltered" (non-trading) sector; the effects in the "exposed" (trading) sector are also significant but more limited. Increased wage coordination and more expenditure on LM policies (active or total) flatten the Phillips curve in both sectors. More active LM policies also reduce the persistence of inflation. However, but only in the non-trading sector, this effect is more than offset (in 15 countries out of 21) by the presence of stronger wage coordination, which increases the persistence of inflation. Finally, the adjustment of inflation to the real exchange rate, i.e. the exchange rate pass-through, is largely unaffected by institutional variables; only for non-tradables there is a strong negative effect of increased union density.

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/dp7616.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7616.

as
in new window

Length: 27 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7616
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. Balázs Égert, 2010. "Catching-up and Inflation in Europe: Balassa-Samuelson, Engel's Law and Other Culprits," OECD Economics Department Working Papers 792, OECD Publishing.
  2. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers 835, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Magda E. Kandil & Hanan Morsy, 2009. "Determinants of Inflation in GCC," IMF Working Papers 09/82, International Monetary Fund.
  4. Christopher Bowdler & Luca Nunziata, 2007. "Inflation Adjustment and Labour Market Structures: Evidence from a Multi-country Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 619-642, 09.
  5. Luca Nunziata, 2005. "Institutions and Wage Determination: a Multi-country Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 435-466, 08.
  6. Lars E. O. Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," NBER Working Papers 5797, National Bureau of Economic Research, Inc.
  7. 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.
  8. Christensen, Jesper Lindgaard, 2013. "The ability of current statistical classifications to separate services and manufacturing," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 47-60.
  9. Nicola-Maria Riley, 1997. "Determinants of Union Membership: A Review," LABOUR, CEIS, vol. 11(2), pages 265-301, 06.
  10. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, December.
  12. Andrés, Javier & Ortega, Eva & Vallés, Javier, 2008. "Competition and inflation differentials in EMU," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 848-874, March.
  13. Aukrust, Odd, 1970. "PRIM I: A Model of the Price and Income Distribution Mechanism of an Open Economy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 16(1), pages 51-78, March.
  14. Emil Stavrev, 2007. "Growth and Inflation Dispersions in EMU; Reasons, the Role of Adjustment Channels, and Policy Implications," IMF Working Papers 07/167, International Monetary Fund.
  15. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  16. Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
  17. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
  18. Hildegunn Kyvik Nordås & Yunhee Kim, 2013. "The Role of Services for Competitiveness in Manufacturing," OECD Trade Policy Papers 148, OECD Publishing.
  19. Angeloni, Ignazio & Ehrmann, Michael, 2004. "Euro area inflation differentials," Working Paper Series 0388, 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:dp7616. 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.