This paper relates the size of the cyclical inflation differentials, currently observed for euro area countries, to the … cyclical inflation differentials. The proposed mechanism is a supply side one in which differences in labor market institutions …

driven by the high-inflation period until 1992, with effects as large as 5.2. Overall, our findings of limited CB real wage … have fully adjusted to the macroeconomic regime of Eurozone membership. …

-side effects into account, we get more persistent inflation and output reactions.We also show that the dichotomy does not hold for … discretionary monetary policy, the fiscal policy regime affects the size of the inflation bias.We also show that commitment to an … optimal monetary policy not only corrects the inflation bias but also increases the persistence of output reactions …