Do Unit Labor Cost Drive Inflation in the Euro Area?
The purpose of this study is to analyze the relationship between unit labor costs and inflation. We estimate an optimal price path model based on a New Keynesian Phillips Curve for eleven euro area countries individually, under the assumption that unit labor costs are proportional to marginal costs. We seek such a model which minimizes the distance between fitted and actual price level fluctuations, with parameters that satisfy theoretical restrictions. The econometric methodology used is a two-step approach method. Estimates show that in eight of the eleven euro area countries there is a plausible relationship between unit labor costs and price level dynamics. The average time needed to adjust prices in line with movements in unit labor costs is estimated to be around eight months. In the case of Slovakia the results indicate rather flexible prices.
|Date of creation:||Dec 2010|
|Contact details of provider:|| Postal: Imricha Karvasa 1, 813 25 Bratislava|
Phone: ++421/2/5787 1111
Fax: ++421/2/6787 1100
Web page: http://www.nbs.sk/en/publications-issued-by-the-nbs/working-papers
More information through EDIRC
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.:
- Kurmann, Andre, 2005. "Quantifying the uncertainty about the fit of a new Keynesian pricing model," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1119-1134, September.
When requesting a correction, please mention this item's handle: RePEc:svk:wpaper:1011. 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: ()
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.