EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Kieler Arbeitspapiere, IfW >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/28341
  
Title:The role of labor markets for euro area monetary policy PDF Logo
Authors:Christoffel, Kai
Kuester, Keith
Linzert, Tobias
Issue Date:2009
Series/Report no.:Kiel working paper 1513
Abstract:In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions. We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy.
Subjects:Labor Market
wage rigidity
bargaining
Bayesian estimation
JEL:E32
E52
J64
C11
Document Type:Working Paper
Appears in Collections:Kieler Arbeitspapiere, IfW
Publikationen von Forscherinnen und Forschern des IfW

Files in This Item:
File Description SizeFormat
598263845.PDF770.98 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/28341

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.