Labour Market Institutions and Inflation Differentials in the EU

43 Pages Posted: 12 Oct 2015

See all articles by Gaetano D'Adamo

Gaetano D'Adamo

University of Valencia

Riccardo Rovelli

Alma Mater Studiorum - Università di Bologna; IZA Institute of Labor Economics

Abstract

Adopting a simple Phillips curve framework, we show that different labour market institutions across EU countries are associated with significant differences in the response of inflation to unemployment and exchange rate shocks. More wage coordination and higher union density flatten the Phillips curve and increase the inflation response to the real exchange rate, i.e. the exchange rate pass-through. In addition, using a new approach to the classification of goods and services as "traded" or "non-traded", we show that both these institutional effects are significantly stronger for the more exposed (traded) sector.

Keywords: sectoral inflation differentials, inflation determinants, labour market institutions, EU 27

JEL Classification: E31, J50, J60

Suggested Citation

D'Adamo, Gaetano and Rovelli, Riccardo, Labour Market Institutions and Inflation Differentials in the EU. IZA Discussion Paper No. 9389, Available at SSRN: https://ssrn.com/abstract=2672175 or http://dx.doi.org/10.2139/ssrn.2672175

Gaetano D'Adamo (Contact Author)

University of Valencia ( email )

No Address Available

Riccardo Rovelli

Alma Mater Studiorum - Università di Bologna ( email )

Bologna
Italy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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