Real Wages and Monetary Policy Transmission in the Euro Area

McCallum, Andrew H.; Smets, Frank

doi:10.2139/ssrn.1967941

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Real Wages and Monetary Policy Transmission in the Euro Area

Kiel Working Paper No. 1360

22 Pages Posted: 3 Dec 2011

See all articles by Andrew H. McCallum

Andrew H. McCallum

Board of Governors of the Federal Reserve System

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: May 20, 2007

Abstract

We use the Factor-Augmented Vector Autoregression (FAVAR) approach of Bernanke, Boivin and Eliasz (2005) to estimate the effects of monetary policy shocks on wages and employment in the euro area. The use of a large data set comprising country, sectoral and euro area-wide data allows us to better identify common monetary policy shocks in the euro area and their effects on labor market outcomes. At the same time the FAVAR approach gives us estimates of how relative wages and employment in the various countries and sectors respond to these common shocks. The ultimate objective of our work is to relate the estimated cross-country differences in wage and employment responses to differences in labor market institutions and sectoral composition.

Keywords: VAR, factor models, rigidity, labour market

JEL Classification: E3, E4, J3, J6

Suggested Citation: Suggested Citation

McCallum, Andrew H. and Smets, Frank, Real Wages and Monetary Policy Transmission in the Euro Area (May 20, 2007). Kiel Working Paper No. 1360, Available at SSRN: https://ssrn.com/abstract=1967941 or http://dx.doi.org/10.2139/ssrn.1967941