Is the unemployment inflation trade-off still alive in the Euro Area and its member countries? It seems so

Antonio Ribba ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: The unemployment inflation trade-off can be interpreted as a proposition concerning the response of these two variables to aggregate demand shocks. In this paper we study the possible presence of the trade-off in the Euro Area and in a wide group of Euroarea countries in the last 20 years, i.e. since the start of EMU. We use the structural VAR methodology that allows the separation between supply and demand shocks. Our main finding is that the existence of a trade-off is largely confirmed both at the Euro Area and at the national level. Nevertheless, the size of the trade-off, measured at different horizons,shows some heterogeneity among countries. No less important, when we augment the VAR model by introducing monetary policy in the context of an open economy, we find that monetary policy shocks push inflation and unemployment in opposite directions in the Currency Area. Another interesting result concerns the evidence of a relatively flat relation between unemployment and inflation, conditionally to monetary policy shocks.

Keywords: Unemployment; Inflation; Structural VARs; Euro Area (search for similar items in EconPapers)
JEL-codes: C32 E24 E31 E32 (search for similar items in EconPapers)
Pages: pages 19
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Is the unemployment–inflation trade‐off still alive in the Euro Area and its member countries? It seems so (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:143

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