Time-Varying Wage Phillips Curves in the Euro Area with a New Measure for Labor Market Slack

30 Pages Posted: 12 Mar 2018

See all articles by Dennis Bonam

Dennis Bonam

VU University Amsterdam

Jakob de Haan

De Nederlandsche Bank; University of Groningen

Duncan Van Limbergen

De Nederlandsche Bank

Date Written: March 7, 2018

Abstract

Recently, the unemployment gap in the euro area has fallen markedly. However, wages increased less than predicted by traditional Phillips curves. Using Bayesian methods, we estimate the wage Phillips curve with time-varying parameters. We consider alternative measures for labor market slack, namely the unemployment gap and the European Commission's labor shortage indicator. Using the latter indicator, we find a steepening of the wage Phillips curve in Italy and France, and a stable Phillips curve in the Netherlands after the crisis. In Germany (Spain), both measures suggest a recent flattening (steepening) of the wage Phillips curve.

Keywords: Wage Phillips curve, Labor shortage indicator, Time-varying parameters

JEL Classification: E24, E31, E58

Suggested Citation

Bonam, Dennis and de Haan, Jakob and Van Limbergen, Duncan, Time-Varying Wage Phillips Curves in the Euro Area with a New Measure for Labor Market Slack (March 7, 2018). De Nederlandsche Bank Working Paper No. 587, Available at SSRN: https://ssrn.com/abstract=3137011 or http://dx.doi.org/10.2139/ssrn.3137011

Dennis Bonam (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Jakob de Haan

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

University of Groningen

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Duncan Van Limbergen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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