Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/36946
Authors: 
Merkl, Christian
Schmitz, Tom
Year of Publication: 
2010
Series/Report no.: 
Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 4924
Abstract: 
This paper analyzes the effects of different labor market institutions on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences across member states, but labor market characteristics have remained very diverse. We use a New Keynesian model with unemployment to predict the effects of different labor market institutions on macroeconomic volatilities. In our subsequent empirical estimations, we find that higher labor turnover costs have a statistically significant negative effect on output volatility, while replacement rates have a positive effect, both of which are in line with theory. While labor market institutions have a large effect on output volatility, they do not seem to have much of an effect on inflation volatility, which can also be rationalized by our theoretical model.
Subjects: 
Labor market institutions
output and inflation volatility
labor turnover costs
unemployment benefits
unemployment
eurozone
JEL: 
E24
E32
J20
Document Type: 
Working Paper

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