Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/333566 
Year of Publication: 
2025
Series/Report no.: 
WIFO Working Papers No. 713
Publisher: 
Austrian Institute of Economic Research (WIFO), Vienna
Abstract: 
We examine how labor market institutions shape monetary policy transmission in euro area countries. A theoretical model suggests that higher union density flattens the Phillips curve, amplifying output responses while dampening the inflation effects of monetary shocks. This is empirically confirmed using an interacted panelVAR. In contrast, benefit replacement rates and employment protection legislation have a limited impact. Our findings point to a structural, not cyclical, driver of monetary policy effectiveness, highlighting the importance of labor market features. In a monetary union, such heterogeneity can lead to inefficient inflation and output differentials across member states.
Subjects: 
Monetary policy
Labor market institutions
Euro area
Interacted panel VAR
JEL: 
C32
C33
E52
J21
J38
Document Type: 
Working Paper

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