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

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 Monetary Union (EMU) period, it is found that the four major economies within the EMU present a level Phillips Curve with similar coefficients, albeit within different specifications. On the contrary, during the same period the UK does not present a detectable level Phillips Curve. During the EMU period, for all countries including the UK, deviations from reference values are found to influence unemployment. Only for Germany and Spain, instead, we find evidence that deviations from reference values influence inflation dynamics. We also finds a decrease in macroeconomic volatility for all European nations, with the exception of France.