The European Unemployment Gap and the Role of Monetary Policy

Citation

Napolitano O & Montagnoli A (2010) The European Unemployment Gap and the Role of Monetary Policy. Economics Bulletin, 30 (2), pp. 1346-1358. http://www.economicsbulletin.com/

Abstract
This study will shed some light on the debate on the impact of monetary policy on the labour market in Europe. The Phillips curve implies that demand-induced changes in inflation tend to lag behind movements in the unemployment rate, which means that a comparison between the actual unemployment rate and the NAIRU may be helpful in forecasting future changes in inflation. By using an unobserved component model with a Kalman filter we estimate the NAIRU for three countries in the euro area. Moreover, using a Markov switching model we investigate whether European monetary policy is responsible for these unemployment gaps and whether the interest rate is transmitted asymmetrically across countries.

Keywords
Monetary Policy; Unemployment Gap; Markov Switching Model

Journal
Economics Bulletin: Volume 30, Issue 2