Drivers of post-pandemic price dynamics and labour market tightness in the euro area

Petteri Juvonen, Jaakko Nelimarkka, Meri Obstbaum and Lauri Vilmi

No 1/2025, BoF Economics Review from Bank of Finland

Abstract: We study recent inflation and labour market dynamics in the euro area within a general equilibrium framework. Rapid inflation was mainly caused by demand and supply shocks, but labor market-specific shocks also contributed to the surge in inflation. Our results underscore the significance of import price shocks in explaining the recent interactions between wages and prices. The observed exceptional labour market tightness has also been influenced by a decline in hours worked per person, alongside more commonly studied demand and supply shocks.

Keywords: euro area; labour market shocks; inflation; labour market tightness (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 F41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofecr:319705

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