Euro area labour markets: Different reaction to shocks?

• Authors: Pierluigi Beatrice , Bruha Jan
• Languages of publication: EN

Abstracts

EN

A small labour market model for the six largest euro-area countries (Germany, France, Italy, Spain, the Netherlands and Belgium) is estimated in a state space framework. The model entails, in the long run, four driving forces: trend labour force, trend labour productivity, long-run inflation rate and trend hours worked. The short run dynamics is governed by a VAR model including six shocks. The state-space framework is convenient for the decomposition of endogenous variables in trends and cycles, for shock decomposition, for incorporating external judgment, and for running conditional projections. The forecast performance of the model is rather satisfactory. The model is used to carry out a policy experiment with the objective of investigating whether euro-area labour markets react differently to a reduction in labour costs. Results suggest that, following the 2008-2009 recession, moderate wage growth would significantly help delivering a more job-intense recovery.

Keywords

EN

Labour market; Forecasting; Kalman Filter

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Journal of Banking and Financial Economics
• Year: 2014
• Issue: 2(2)
• Pages: 34-60

Dates

online

2014-11-19

Contributors

author

Pierluigi Beatrice

• European Central Bank, Germany

author

Bruha Jan

• Czech National Bank, Czech Republic

References

• Andrle M. (2013) What is in Your Output Gap? Unified Framework & Decomposition into Observables, IMF working paper WP/13/105.
• Angelini E., A. Dieppe, B. Pierluigi (2013) Learning about wage and price mark-ups in euro area countries, ECB working paper no. 1512.
• Arpaia A., N. Curci (2010) EU labour market behaviour during the Great Recession, European Economy, Economic Paper 405, February 2010.
• Brůha, J. (2011). An Empirical Small Labor Market Model for the Czech Economy, Czech Journal of Economics and Finance 5/2011, pp. 434–452.
• Canova, F., Ferroni, F. (2009) Multiple filtering devices for the estimation of cyclical DSGE models. Economics working papers no. 1241, Universitat Pompeu Fabra.
• Carabenciov, I., Ermolaev, I., Freedman, C., Juillard, M., Kamenik, O., Korshunov, D., Laxton, D. (2008) A Small Quarterly Projection Model of the US Economy. IMF working paper WP/08/278.
• Chernozhukov, V., Hong, H. (2003) An MCMC approach to classical estimation. Journal of Econometrics 115, pp. 293–346. DOI: 10.1016/S0304-4076(03)00100-3
• Duarte R., C. R. Marques (2009) The dynamic effects of shocks to wages and prices in the US and the euro area. ECB working paper no. 1067, July 2009.
• Duval R., D. Haugh, S. Scarpetta (2010) Return to work after the crisis, OECD working paper no. ECO/2010/7. European Commission (2006) Labour market and wage developments in 2005, with special focus on labour market adjustment in the euro area, European Economy Special report, no. 6/2006.
• Estevao M. (2005) Product market regulation and the benefit of wage moderation. IMF working paper 05/191. Gomes S, Jacquinot P, Mohr M., Pisani M. (2011) Structural reforms and macroeconomic performance in the euro area countries: a model based assessment, ECB working papers no. 1323, April 2011.
• Hansen H., A. Warne (2001) The cause of Danish unemployment: Demand or supply shocks? Empirical Economics 26, pp. 461-486 DOI 10.1007/s001810000066
• Harvey, A.C. (1989) Forecasting, structural time series and the Kalman filter. Cambridge University Press, Cambridge.
• Harvey, A.C., Jaeger A. (1993) Detrending, Stylized Facts, and the Business Cycle. Journal of Applied Econometrics 8(3), pp. 231–247. DOI: 10.1002/jae.3950080302
• Hjelm, G., Jönsson, K. (2010) In search of a method for measuring the output gap of the Swedish economy: economic, econometric and practical considerations. NIER working paper, February 2010.
• Koopman, S.J., Harvey, A.C. (2003) Computing observation weights for signal extraction and filtering. Journal of Economic Dynamics and Control 27, pp. 1317-1333. DOI: 10.1016/S0165-1889(02)00061-1
• Layard, R., Nickell, S., Jackman, R. (1991) Unemployment, Macroeconomic Performance and the Labour Market. Oxford University Press, Oxford.
• Leiner-Killinger N., C. Madaschi, M. Ward-Warmedinger (2005) Trends and patterns in working time across euro area countries 1970-2004, ECB Occasional Paper no. 41, December 2005.
• Leser, C.E.V. (1961) A Simple Method of Trend Construction. Journal of the Royal Statistical Society B 23, pp. 91–107.
• Morgan J., A. Mourougane (2005) What can changes in structural factors tell us about unemployment in Europe? Scottish Journal of Political Economy 25 (1), pp. 75–104. DOI: 10.1111/j.0036-9292.2005.00336.x
• Mourre G. (2006). Did the pattern of aggregate employment growth change in the euro area in the late 1990s? Applied Economics 38, pp. 1783–1807. DOI:10.1080/00036840500427072
• Pierluigi, B., Roma, M. (2008) Labour cost and employment across euro area countries and sectors, ECB Working Paper 912, June 2008.
• Proietti, T., Musso, A. (2007) Growth Accounting for the Euro Area: A Structural Approach. ECB Working Paper 804, August 2007.
• Tiao G., Xu, D. (1993) Robustness of maximum likelihood estimates for multi-step predictions: the exponential smoothing case. Biometrika 80, pp. 623–641. doi: 10.1093/biomet/80.3.623

Identifiers

ISSN

2353-6845

DOI

10.7172/2353-6845.jbfe.2014.2.2