Skip navigation

Labor market reform and price stability : an application to the euro area

Thumbnail
View
702,01 kB
Authors
Issue Date
2008
Physical description
38 p. : fórmulas
Abstract
This paper studies the effect of labor market reform, in the form of reductions in firing costs and unemployment benefits, on inflation volatility. With this purpose, we build a New Keynesian model with search and matching frictions in the labor market, and estimate it using Euro Area data. Qualitatively, changes in labor market policies alter the volatility of inflation in response to shocks, by affecting the volatility of the three components of real marginal costs (hiring costs, firing costs and wage costs). Quantitatively, we find however that neither policy is likely to have an important effect on inflation volatility, due to the small impact of changes in the volatility of the labor market on inflation dynamics
Publish on
Documentos de trabajo / Banco de España, 0818
Subjects
Appears in Collections:


loading