The Unemployment Inflation Trade-Off in the Euro Area

Tobias Linzert

No 1699, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the relationship between unemployment and wage inflation for 10 of the euro area countries. The combination of low wage inflation and high unemployment in Europe is usually attributed to a rise in the natural rate of unemployment. Using a panel data approach, this paper models directly the specific structural determinants of the natural rate of unemployment that may account for a changing pattern in the unemployment inflation trade-off. Moreover, it analyzes whether the responsiveness of wages crucially depends on the level of inflation and the level of unemployment. This allows to detect possible downward rigidity of wages and grease or sand effects of positive levels of inflation.

Keywords: Phillips Curve; unemployment; panel analysis (search for similar items in EconPapers)
JEL-codes: C23 E24 E31 J64 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2005-07
New Economics Papers: this item is included in nep-eec, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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