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Macroeconomic volatilities and the labor market: First results from the euro experiment

Christian Merkl () and Tom Schmitz

European Journal of Political Economy, 2011, vol. 27, issue 1, 44-60

Abstract: We analyze the effects of labor market institutions (LMIs) on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences. We use a New Keynesian model with unemployment to predict the effects of LMIs. In our empirical estimations, we find that higher labor turnover costs have a significant negative effect on output volatility, while replacement rates have a positive effect, both in line with theory. While LMIs have a large effect on output volatility, they do not matter much for inflation volatility.

Keywords: Labor; market; institutions; Output; and; inflation; volatility; Labor; turnover; costs; Unemployment; benefits; Unemployment; Eurozone (search for similar items in EconPapers)
Date: 2011
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Working Paper: Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment (2010) Downloads
Working Paper: Macroeconomic volatilities and the labor market: first results from the euro experiment (2009) Downloads
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