Real Wages and Monetary Policy Transmission in the Euro Area

Kiel Working Paper No. 1360

22 Pages Posted: 3 Dec 2011  

Andrew H. McCallum

Federal Reserve Board

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

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

Andrew Harrison McCallum (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.andrewhmccallum.com

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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