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High Unemployment and Disinflation in the Euro Area Periphery Countries

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Abstract

Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between disinflation and labor market deterioration in euro area countries.

Suggested Citation

  • Thomas Klitgaard & Richard Peck, 2014. "High Unemployment and Disinflation in the Euro Area Periphery Countries," Liberty Street Economics 20140714a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86957
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    Cited by:

    1. Döhrn, Roland & Fuest, Angela & Micheli, Martin & Schmidt, Christoph M., 2014. "Bewertung der lohnpolitischen Empfehlungen der Bundesbank und der EZB. Kurzexpertise im Auftrag des vbm: Verband der Bayerischen Metall- und Elektro-Industrie e.V," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 111485.
    2. Christine Garnier & Elmar Mertens & Edward Nelson, 2015. "Trend Inflation in Advanced Economies," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 65-136, September.

    More about this item

    Keywords

    inflation; unemployment; Euro Area; periphery; disinflation; Phillips curve;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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