Kiel Working Papers, Kiel Institute for World Economics
No 1360:
Real wages and monetary policy transmission in the euro area
Andrew McCallum and Frank Smets
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 labour 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 labour market
institutions and sectoral composition.
Keywords: VAR, factor models, rigidity, labour market; (follow links to similar papers)
JEL-Codes: E3,; E4,; J3,; J6; (follow links to similar papers)
20 pages, June 2007
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