Working Paper Series no. 247: Disinflation and unemployment in the euro area : A SVAR-based analysis (in French)

Abstract

The present paper investigates the dynamic effects of disinflation shocks for a number of real macroeconomic variables in the euro area. Using structural VARs, we identify disinflation shocks as the only shocks that can exert a long--run effect on inflation as well as other nominal variables cointegrating with inflation. These shocks are found to generate large recessionary effects, notably when it comes to investment, and triggers a persistent rise in unemployment and in the real interest rate. The analysis is complemented by computing inefficiency measures on goods and labor markets. We show that, after a disinflation shock, inefficiencies in the labor market seem to prevail. These conclusions are robust to modifications of our baseline identification scheme.

Patrick Fève, Julien Matheron and Jean-Guillaume Sahuc
August 2009

Classification JEL : C32, E31, E52

Keywords : SVAR, long-run restrictions, disinflation.