Wages and prices in Europe before and after the onset of the Monetary Union

- We consider wages, prices, and unemployment for 5 EU countries before and after the EMU.
- We use cointegration to investigate Phillips Curves and other relations between levels.
- During the EMU, countries within it show a level Phillips Curve with homogeneous coefficients.
- For all countries in the EMU period, deviations from steady states influence unemployment.
- Only for Germany and Spain deviations from steady states influence inflation dynamics.

This paper investigates possible structural changes induced by the Euro on the relations among wages, prices and unemployment for the five major European economies. The dynamic adjustment and the level relations are found to be different across subperiods as well as across countries. During the European Economic and Monetary Union (EMU) period, there is evidence of a conventionally-sloped Phillips Curve for the four economies within the EMU, with a higher degree of homogeneity with respect to the pre-EMU period; the UK presents instead a positively-sloped Phillips Curve in the EMU period. In this latter period, deviations from reference values are found to influence unemployment for all countries, including the UK. Only for Germany and Spain, instead, we find evidence that deviations from reference values influence inflation dynamics.