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Euro area labour markets: Different reaction to shocks?

Beatrice Pierluigi (), Jan Bruha () and Roberta Serafini ()
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Beatrice Pierluigi: European Central Bank, Germany
Roberta Serafini: European Central Bank, Germany

Journal of Banking and Financial Economics, 2014, vol. 2, issue 2, 34-60

Abstract: A small labour market model for the six largest euro-area countries (Germany, France, Italy, Spain, the Netherlands and Belgium) is estimated in a state space framework. The model entails, in the long run, four driving forces: trend labour force, trend labour productivity, long-run inflation rate and trend hours worked. The short run dynamics is governed by a VAR model including six shocks. The state-space framework is convenient for the decomposition of endogenous variables in trends and cycles, for shock decomposition, for incorporating external judgment, and for running conditional projections. The forecast performance of the model is rather satisfactory. The model is used to carry out a policy experiment with the objective of investigating whether euro-area labour markets react differently to a reduction in labour costs. Results suggest that, following the 2008-2009 recession, moderate wage growth would significantly help delivering a more job-intense recovery.

Keywords: Labour market; Forecasting; Kalman Filter (search for similar items in EconPapers)
JEL-codes: C51 C53 E17 J21 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Euro area labour markets: different reaction to shocks? (2011) Downloads
Working Paper: Euro area labour markets: different reaction to shocks? (2011) Downloads
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