High Unemployment and Disinflation in the Euro Area Periphery Countries

Thomas Klitgaard and Richard Peck

No 20140714a, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between disinflation and labor market deterioration in euro area countries.

Keywords: inflation; unemployment; Euro Area; periphery; disinflation; Phillips curve (search for similar items in EconPapers)
JEL-codes: E2 F00 (search for similar items in EconPapers)
Date: 2014-07-14
New Economics Papers: this item is included in nep-mac and nep-mon
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