We model empirically the role of labor market institutions in affecting the response of inflation to labor market and exchange rate shocks in the EU. We adopt a simple Phillips curve framework, treating separately the sectors producing traded and non-traded goods. Our results show that labor...

Adopting a simple Phillips curve framework, we show that different labour market institutions across EU countries are associated with significant differences in the response of inflation to unemployment and exchange rate shocks. More wage coordination and higher union density flatten the...