ECB Research Bulletin – Wage Dynamics, fiscal stimulus working and risk in monetary policy

ECB’s recent research bulletin looks at all these three issues. It covers research on these issues:

Wage dynamics in Europe: some new findings By Ana Lamo and Frank Smets
The response of wages to the sharp contraction in economic activity during the recent crisis has been very subdued in the euro area. The research summarised in this article uncovers some features of wage setting in Europe that contribute to the aggregate degree of wage rigidity.

When does fiscal stimulus work? By Günter Coenen, Juha Kilponen and Mathias Trabandt
Expansionary fiscal policies have been used extensively during the financial and economic crisis with the aim of boosting overall economic activity. Building on insights from structural macroeconomic models, this article highlights key factors that are important for successful fiscal stimulus programmes

Risk, Uncertainty and monetary policy By Geert Bekaert and Marie Hoerova
This article documents a strong co-movement between a measure of stock market risk (the VIX) and monetary policy. It analyses which of two components of the VIX, risk aversion or uncertainty, are primary drivers of this co-movement. The main findings are that an easing of monetary policy leads to  a decrease in risk aversion in the medium run while higher uncertainty leads to a laxer monetary policy.

Very useful literature survey from a European perspective. Especially the first case on wages. In Europe labor market what has happened is either people have lost jobs or hours at work have declined. However wages have not declined. Why?

When examining the determinants of wage stickiness, the WDN evidence suggests that collective bargaining institutions, employment protection legislation (EPL) and product market competition are important factors shaping the response of wages, employment and prices to economic developments. In particular, higher-level bargaining, stringent EPL and a lack of goods market competition lead to higher real wage rigidity and a stronger employment response to shocks.

2 Responses to “ECB Research Bulletin – Wage Dynamics, fiscal stimulus working and risk in monetary policy”

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