The Role of Labor Market Institutions in Shaping Euro Area Monetary Policy Transmission

Maximilian Boeck and Christian Glocker
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Maximilian Boeck: Friedrich-Alexander-Universität Erlangen-Nürnberg
Christian Glocker: WIFO

No 713, WIFO Working Papers from WIFO

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.

Keywords: Monetary policy; Labor market institutions; Euro area; Interacted panel VAR (search for similar items in EconPapers)
Pages: 62 pages
Date: 2025-10-15
New Economics Papers: this item is included in nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2025:i:713

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