Smets and Wouters (2003) find that at short- and medium-term horizons stochastic variations in the goods market mark …-up are the most important source of inflation variability in the euro area. This article shows that an empirically plausible …

the effects of monetary policy shocks on wages and employment in the euro area. The use of a large data set comprising … country, sectoral and euro area-wide data allows us to better identify common monetary policy shocks in the euro area and … their effects on labour market outcomes. At the same time the FAVAR approach gives us estimates of how relative wages and …