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Drivers of post-pandemic price dynamics and labour market tightness in the euro area

Author

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  • Juvonen, Petteri
  • Nelimarkka, Jaakko
  • Obstbaum, Meri
  • Vilmi, Lauri

Abstract

We study recent inflation and labour market dynamics in the euro area within a general equilibrium framework. Rapid inflation was mainly caused by demand and supply shocks, but labor market-specific shocks also contributed to the surge in inflation. Our results underscore the significance of import price shocks in explaining the recent interactions between wages and prices. The observed exceptional labour market tightness has also been influenced by a decline in hours worked per person, alongside more commonly studied demand and supply shocks.

Suggested Citation

  • Juvonen, Petteri & Nelimarkka, Jaakko & Obstbaum, Meri & Vilmi, Lauri, 2025. "Drivers of post-pandemic price dynamics and labour market tightness in the euro area," BoF Economics Review 1/2025, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:319705
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    References listed on IDEAS

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    1. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    2. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, December.
    3. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    4. Botelho, Vasco, 2022. "The impact of the influx of Ukrainian refugees on the euro area labour force," Economic Bulletin Boxes, European Central Bank, vol. 4.
    5. Hahn, Elke, 2023. "How have unit profits contributed to the recent strengthening of euro area domestic price pressures?," Economic Bulletin Boxes, European Central Bank, vol. 4.
    6. Agostino Consolo & Claudia Foroni & Catalina Martínez Hernández, 2023. "A Mixed Frequency BVAR for the Euro Area Labour Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(5), pages 1048-1082, October.
    7. Bernardus Doornik & Deniz Igan & Enisse Kharroubi, 2023. "Labour markets: what explains the resilience?," BIS Quarterly Review, Bank for International Settlements, December.
    8. Obstbaum, Meri & Oinonen, Sami & Pönkä, Harri & Vanhala, Juuso & Vilmi, Lauri, 2023. "Transmission of recent shocks in a labour-DSGE model with wage rigidity," BoF Economics Review 1/2023, Bank of Finland.
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    Cited by:

    1. Nickel, Christiane & Kilponen, Juha & Moral-Benito, Enrique & Koester, Gerrit & Ciccarelli, Matteo & Enders, Almira & Holton, Sarah & Landau, Bettina & Venditti, Fabrizio & Bobeica, Elena & Brand, Cla, 2025. "A strategic view on the economic and inflation environment in the euro area," Occasional Paper Series 371, European Central Bank.

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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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