Euro-area labour markets: Different reaction to shocks?
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...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
University of Warsaw
2014-11-01
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| Series: | Journal of Banking and Financial Economics |
| Subjects: | |
| Online Access: | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1096&context=jbfe |
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| Summary: | 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. |
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| ISSN: | 2353-6845 |