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The Role of Labour Market Institutions in Shaping Euro Area Monetary Policy Transmission

Year: 2025

Type: article

Abstract: ABSTRACT We examine how labour market institutions shape monetary policy transmission in euro area countries. A theoretical model suggests that higher union density flattens the Phillips curve, amplifying output responses while dampening the inflation effects of monetary shocks. This is empirically confirmed using an interacted panel VAR. In contrast, benefit replacement rates and employment protection legislation have a limited impact. Our findings point to a structural, not cyclical, driver of monetary policy effectiveness, highlighting the importance of labour market features. In a monetary union, such heterogeneity can lead to inefficient inflation and output differentials across member states.

Source: Oxford Bulletin of Economics and Statistics

DOI: 10.1111/obes.70029

Authors: Maximilian Boeck, Christian Glocker

Institutions: Friedrich-Alexander-Universität Erlangen-Nürnberg, Austrian Institute of Economic Research

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,840