Figure 1: Euro-area Labor Market Indicators
This figure is a line graph showing EA (Euro Area) labor market indicators from 2010 to 2025. The graph has two lines representing different measures:
A solid blue line labeled "Level"
A dashed orange line labeled "Momentum"
The vertical axis represents an Index value, ranging from -15 to 5, with 0 marked by a horizontal line.
The horizontal axis shows time, starting from 2010q1 (first quarter of 2010) to 2025q1 (first quarter of 2025).
The "Level" line (blue) shows a general upward trend over the entire period. It starts below -3 in 2010, drops to around -5 by 2015, then steadily rises to about 5 by 2025.
The "Momentum" line (orange) fluctuates more dramatically:
It hovers around 0 from 2010 to 2020.
There's a sharp drop to about -15 in early 2020, likely reflecting the impact of the COVID-19 pandemic.
It quickly recovers and fluctuates around 0 for the remainder of the period.
Both lines show significant volatility around 2020, with the "Momentum" line experiencing more extreme changes.
By the end of the period (2025), the "Level" line is at its highest point, while the "Momentum" line is slightly below 0.
The source of the data is cited as "Authors' calculations, Haver Analytics, Eurostat."
Figure 2: Euro-area Labor Market Indicators: Baseline and alternative specification
This is a line graph showing various labor market indicators for the Euro Area (EA) from 2005 to 2025.
The horizontal axis represents time, starting from the first quarter of 2005 (2005q1) to the first quarter of 2025 (2025q1), in 5-year intervals.
The vertical axis shows an index value ranging from -15 to 5, with 0 marked by a horizontal line.
The graph displays four different indicators:
Level (solid blue line)
Momentum (solid red line)
Level - Alt (dashed light blue line)
Momentum - Alt (dashed red line)
The Level indicator starts around -3 in 2005, drops to about -5 in 2015, then rises steadily to about 5 by 2025.
The Momentum indicator shows more volatility, fluctuating between -2 and 3 for most of the period, with a sharp drop to about -14 in early 2020 (likely due to the COVID-19 pandemic), followed by a quick recovery.
The Level - Alt and Momentum - Alt indicators generally follow similar patterns to their main counterparts but with some variations.
All indicators show significant volatility around 2020, with the Momentum indicator experiencing the most extreme change.
By 2025, the Level indicator is at its highest point, while the Momentum indicator is slightly below 0.
The source of the data is cited as "Authors' calculations, Haver Analytics, Eurostat."
Figure 3: Predicted changes in unemployment
This image contains two line graphs side by side, labeled (a) In-Sample and (b) Out-of-Sample.
(a) In-Sample:
The x-axis shows years from 2005 to 2019.
The y-axis ranges from approximately -0.5 to 1.0, representing change (%).
Three lines are plotted:
A solid black line (Official)
A dotted blue line (EEI Model)
A dashed red line (LMI Model)
The graph shows fluctuations over time, with a notable peak around 2009.
RMSE values are provided: LMI RMSE = 0.178, EEI RMSE = 0.19
(b) Out-of-Sample:
The x-axis shows years from 2004 to 2020.
The y-axis range is similar to the in-sample graph.
The same three lines are plotted with identical styling.
This graph also shows fluctuations, with a prominent peak around 2008.
RMSE values are provided: LMI RMSE = 0.194, EEI RMSE = 0.210
Both graphs show similar patterns, with the models generally following the official line but with some deviations. The out-of-sample graph extends slightly further in time than the in-sample graph.
Notes below the graphs state that the chart shows extended sample results from 2005Q1 through 2019Q4. The out-of-sample is based on an expanding window 1-step ahead forecast with an initial window of 40 observations. LMI stands for the euro-area Momentum Labor Market Indicator developed in this paper, EEI for the European Commission's Employment Expectations Indicator.
Figure 4: Local projection analysis: Unemployment Rate
This figure consists of two side-by-side graphs showing different effects on the unemployment rate over 8 quarters.
(a) Average Effect:
The x-axis shows quarters from 0 to 8.
The y-axis represents percent, ranging from -0.2 to 0.4.
A solid blue line represents the mean value, peaking at around 0.28% in quarter 4.
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval.
A lighter blue area represents the 90% confidence interval.
The effect starts near 0, rises to a peak around quarter 4, then declines towards 0 by quarter 8.
(b) Dampening Effect:
The x-axis is the same as in (a), showing quarters 0 to 8.
The y-axis shows percent, ranging from -0.06 to 0.04.
A solid blue line represents the mean value, starting slightly below 0 and gradually approaching 0.
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence.
Light blue for 90% confidence.
The effect starts slightly negative, around -0.02%, and gradually moves towards 0, with widening confidence intervals.
Note: The caption explains that light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.
Figure 5: Local projection analysis: Employment Rate
This figure consists of two side-by-side graphs showing different effects on the employment rate over 8 quarters.
(a) Average Effect:
The x-axis shows quarters from 0 to 8.
The y-axis represents percent, ranging from -0.4 to 0.4.
A solid blue line represents the mean value.
The line starts near 0, drops to around -0.2% by quarter 3-4, then rises sharply to about 0.2% by quarter 8.
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval.
A lighter blue area represents the 90% confidence interval.
The confidence intervals widen significantly towards quarter 8.
(b) Dampening Effect:
The x-axis is the same as in (a), showing quarters 0 to 8.
The y-axis shows percent, ranging from -0.04 to 0.06.
A solid blue line represents the mean value.
The line starts at about 0.04%, drops to near 0 by quarter 2, remains close to 0 until quarter 6, then rises to about 0.02% by quarter 8.
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence.
Light blue for 90% confidence.
The confidence intervals widen as quarters progress, particularly after quarter 4.
Note: The caption explains that light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.
Figure 6: Local projection analysis: Inflation
This figure consists of two side-by-side graphs showing different effects on inflation over 8 quarters.
(a) Average Effect:
The x-axis shows quarters from 0 to 8.
The y-axis represents percent, ranging from -0.8 to 0.2.
A solid blue line represents the mean value.
The line starts at about -0.2%, drops to around -0.4% by quarter 3, remains low until quarter 6, then rises sharply towards 0% by quarter 8.
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval.
A lighter blue area represents the 90% confidence interval.
The confidence intervals are widest around quarters 3-5 and narrow slightly towards the end.
(b) Dampening Effect:
The x-axis is the same as in (a), showing quarters 0 to 8.
The y-axis shows percent, ranging from -0.05 to 0.1.
A solid blue line represents the mean value.
The line starts near 0.02%, rises to a peak of about 0.06% around quarter 2-4, then declines, crossing 0% and becoming slightly negative by quarter 8.
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence.
Light blue for 90% confidence.
The confidence intervals widen as quarters progress, particularly after quarter 4.
Note: The caption explains that light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.
Figure 7: Impulse responses to a monetary policy shock and implied Taylor Rule
This figure consists of four separate graphs, each showing different aspects of monetary policy over 8 quarters.
(a) Monetary Policy Shock:
X-axis: Quarters from 0 to 8
Y-axis: Percentage change from 0 to 1
Two lines: Baseline (solid black) and High Momentum (dashed red)
Both lines start at 1, drop sharply to near 0 by quarter 1, and remain at 0 for the rest of the
(b) Inflation:
X-axis: Quarters from 0 to 8
Y-axis: Percent from 1.4 to 2.2
Two lines: High Momentum (dashed red) and Baseline (solid black)
High Momentum line fluctuates between 1.8% and 2.1%, ending slightly above 2%
Baseline line starts at 1.8%, drops to about 1.5% by quarter 3, then rises steadily to about 2.1% by quarter 8
(c) Unemployment:
X-axis: Quarters from 0 to 8
Y-axis: Percent from 7.05 to 7.3
Two lines: High Momentum (dashed red) and Baseline (solid black)
High Momentum line starts lower, peaks around 7.2% at quarter 4, then drops to about 7.05% by quarter 8
Baseline line starts higher, peaks around 7.3% at quarter 3, then drops to about 7.15% by quarter 8
(d) Policy Rates:
X-axis: Quarters from 0 to 8
Y-axis: Percent from 1.5 to 2
Two lines: High Momentum (dashed red) and Baseline (solid black)
Both lines start at 2%, with High Momentum dropping less sharply
High Momentum line bottoms out around 1.85% at quarter 6, then rises slightly
Baseline line drops more steeply, bottoming out at about 1.6% at quarter 5-6, then rises to about 1.75% by quarter 8
Figure 8: Estimated Policy Rates: Robustness for Additional Neutral Rate Specifications
This figure consists of three graphs showing policy rates over 8 quarters for different neutral rate specifications.
(a) Neutral rate: 1.75 percent
X-axis: Quarters from 0 to 8
Y-axis: Percent from 1.4 to 1.8
Two lines: High Momentum (dashed red) and Baseline (solid black)
Both lines start at about 1.75%
High Momentum line decreases gradually to about 1.62% by quarter 6, then rises slightly Baseline line drops more steeply to about 1.4% by quarter 5-6, then rises to about 1.55% by quarter 8
(b) Neutral rate: 2.25 percent
X-axis: Quarters from 0 to 8
Y-axis: Percent from 1.8 to 2.3
Two lines: High Momentum (dashed red) and Baseline (solid black)
Both lines start at about 2.25%
High Momentum line decreases gradually to about 2.1% by quarter 6, then rises slightly Baseline line drops more steeply to about 1.8% by quarter 5-6, then rises to about 2% by quarter 8
(c) Neutral rate: 3 percent
X-axis: Quarters from 0 to 8
Y-axis: Percent from 2.4 to 3
Two lines: High Momentum (dashed red) and Baseline (solid black)
Both lines start at 3%
High Momentum line decreases gradually to about 2.8% by quarter 6, then rises slightly
Baseline line drops more steeply to about 2.4% by quarter 5-6, then rises to about 2.6% by quarter 8
In all three scenarios, the High Momentum line shows a more gradual decrease and maintains a higher policy rate compared to the Baseline line. The Baseline line consistently shows a steeper drop and a more pronounced recovery towards the end of the period.
Figure 9: Labor Market Indicators Based Unemployment Rate
This figure shows a line graph comparing the official unemployment rate with an euro area LMI-based unemployment rate over time.
X-axis: Time, ranging from 2005q1 (first quarter of 2005) to 2025q1 (first quarter of 2025)
Y-axis: Rate, ranging from 6 to 12 percent
Two lines are plotted:
Official unemployment rate (solid brown line)
Euro area labor market indicator-based URate (dashed green line)
Trends:
Both lines follow a similar overall pattern, with some notable differences.
The rates start around 9% in 2005, decrease to about 7% by 2008, then sharply increase to a peak of about 12% around 2013-2014.
After the peak, both rates decline steadily until 2020.
Around 2020, there's a sharp, brief increase in both rates, likely corresponding to the COVID-19 pandemic.
Following this spike, the rates quickly decrease again, reaching about 6-7% by 2025.
The source of the data is cited as "Authors' calculations, Haver Analytics, Eurostat" at the bottom of the image.
Figure 10: Measures of Phillips Curve
This figure contains two scatter plots side by side, both representing different measures of the Phillips Curve.
(a) Headline inflation
X-axis: Time, ranging from approximately -2 to 2
Y-axis: Rate, ranging from 0 to 10
Two sets of data points:
Official UGap (light brown dots)
Model based UGap (green dots)
Both sets show a general downward trend from left to right
The green dots (Model based UGap) appear to have a steeper downward slope than the brown dots
(b) Nominal Compensation inflation
X-axis: Time, ranging from approximately -2 to 2
Y-axis: Rate, ranging from -10 to 10
Two sets of data points:
Official UGap (light brown dots)
Model based UGap (green dots)
Both sets show a slight downward trend from left to right
The data points are more clustered together compared to the Headline inflation graph
Most points fall between 0 and 10 on the y-axis, with a few outliers below 0
Note at the bottom: UGap stands for Unemployment Gap and it is calculated as the difference between the measure of unemployment depicted and the trend obtained from applying a Hodrick-Prescott filter to the quarterly unemployment rate.
Source: Authors' calculations, Haver Analytics, Eurostat
Figure 11: In-Sample Prediction: Full Sample
This figure contains two side-by-side line graphs showing in-sample predictions for different lag periods.
(a) 1-lag
X-axis: Time, ranging from 2011 to 2025
Y-axis: Range from approximately -0.5 to 1
Three lines are plotted:
Official (black line)
EEI Model (red line)
LMI Model (blue line)
All three lines follow a similar pattern, with a notable spike around 2020-2021
The spike reaches about 5 on the y-axis and quickly drops to about -5 before returning to normal range
Outside of the spike, the lines generally fluctuate between -1 and 1
Legend indicates RMSE values: LMI RMSE = 0.242, EEI RMSE = 0.242
(b) 2-lag
X-axis and Y-axis are the same as in the 1-lag graph
The same three lines are plotted with identical colors
The overall pattern is very similar to the 1-lag graph, including the spike around 2020-2021
Legend indicates slightly different RMSE values: LMI RMSE = 0.15, EEI RMSE = 0.148
Note at the bottom: Data extend from 2011Q1 through 2025Q1. LMI stands for the euro-area Momentum Labor Market Indicator developed in this paper, EEI for the European Commission's Employment Expectations Indicator.
Figure 12: In-Sample Prediction: Pre-COVID Short Sample
This figure contains two side-by-side line graphs showing in-sample predictions for different lag periods, focusing on the pre-COVID period.
(a) 1-lag
X-axis: Time, ranging from 2011 to 2019
Y-axis: Ranges from approximately -0.4 to 0.4
Three lines are plotted:
Official (black line)
EEI Model (red line)
LMI Model (blue line)
The official line shows more pronounced fluctuations compared to the model lines
All lines start with a peak around 2011-2012, then generally trend downward with fluctuations
Legend indicates RMSE values: LMI RMSE = 0.283, EEI RMSE = 0.275
(b) 2-lag
X-axis and Y-axis are the same as in the 1-lag graph
The same three lines are plotted with identical colors
The overall pattern is very similar to the 1-lag graph
Legend indicates slightly different RMSE values: LMI RMSE = 0.179, EEI RMSE = 0.173
Note at the bottom: Data extend from 2011Q1 through 2019Q4. LMI stands for the euro-area Momentum Labor Market Indicator developed in this paper, EEI for the European Commission's Employment Expectations Indicator.
Figure 13: In-Sample Prediction: European Labor Market Barometer (LMB)
This figure contains two side-by-side line graphs showing in-sample predictions for the European Labor Market Barometer using different lag periods.
(a) 1-lag
X-axis: Time, ranging from 2012 to 2020
Y-axis: Ranges from approximately -0.4 to 0.4
Three lines are plotted:
Official (black line)
EEI Model (red dashed line)
LMI Model (blue dotted line)
The official line shows more pronounced fluctuations compared to the model lines
All lines start with a peak around 2012, then generally trend downward with fluctuations until 2016, after which they trend upward
Legend indicates RMSE values: LMI RMSE = 1.175, EEI RMSE = 1.176
(b) 2-lag
X-axis and Y-axis are the same as in the 1-lag graph
The same three lines are plotted with identical colors and styles
The overall pattern is very similar to the 1-lag graph
Legend indicates slightly different RMSE values: LMI RMSE = 0.756, EEI RMSE = 0.758
Note at the bottom: Data extend from 2012Q1 through 2019Q4. LMI stands for the euro-area Momentum Labor Market Indicator developed in this paper.
Figure 14: In-Sample Prediction: Component A of LMB
This figure contains two side-by-side line graphs showing in-sample predictions for Component A of the Labor Market Barometer (LMB) using different lag periods.
(a) 1-lag
X-axis: Time, ranging from 2009 to 2019
Y-axis: Ranges from approximately -0.4 to 0.4
Three lines are plotted:
Official (black solid line)
LMI Model (blue dotted line)
Component Model (red dashed line)
The official line shows more pronounced fluctuations compared to the model lines
All lines start with a sharp drop around 2009, followed by a quick recovery and subsequent fluctuations
Legend indicates RMSE values: LMI RMSE = 1.180, Component RMSE = 0.829
(b) 2-lag
X-axis and Y-axis are the same as in the 1-lag graph
The same three lines are plotted with identical colors and styles
The overall pattern is very similar to the 1-lag graph
Legend indicates slightly different RMSE values: LMI RMSE = 0.785, Component RMSE = 0.835
Note at the bottom: Data extend from 2009Q3 through 2019Q4. LMI stands for the euro-area Momentum Labor Market Indicator developed in this paper, EEI for the European Commission's Employment Expectations Indicator.
Figure 15: Local projection analysis: Labor Force Rate
This figure contains two side-by-side graphs showing different effects on the labor force rate over 8 quarters.
(a) Average Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.3 to 0.3
A solid blue line represents the mean value
The line starts slightly below 0, drops to about -0.5% by quarter 2-3, then rises to about 1% by quarter 8
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval
A lighter blue area represents the 90% confidence interval
The confidence intervals widen as quarters progress, indicating increasing uncertainty
(b) Dampening Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.04 to 0.04
A solid blue line represents the mean value
The line starts at about 0.04%, drops sharply to about -0.01% by quarter 1, then fluctuates between -0.01% and 0.01% for the remaining quarters
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence
Light blue for 90% confidence
The confidence intervals widen as quarters progress, particularly after quarter 4 Note at the bottom: Light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.
Figure 16: Local projection analysis: Hours worked per employee
This figure contains two side-by-side graphs showing different effects on hours worked per employee over 8 quarters.
(a) Average Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.015 to 0.01
A solid blue line represents the mean value
The line starts slightly below 0, drops to about -0.01 by quarter 3, then rises to about 0.005 by quarter 8
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval
A lighter blue area represents the 90% confidence interval
The confidence intervals widen as quarters progress
(b) Dampening Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.002 to 0.003
A solid blue line represents the mean value The line starts at about 0.0025, drops sharply to about -0.001 by quarter 1, then gradually rises to slightly above 0 by quarter 8
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence
Light blue for 90% confidence
The confidence intervals widen slightly as quarters progress
Note at the bottom: Hours worked per person employed are expressed in log growth rates. Light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.
Figure 17: Local projection analysis: Nominal Compensation per Employee
This figure contains two side-by-side graphs showing different effects on nominal compensation per employee over 8 quarters.
(a) Average Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.008 to 0.002
A solid blue line represents the mean value
The line starts around -0.003, drops to about -0.005 by quarter 3, then rises to about -0.001 by quarter 8
Two shaded areas surround the line:
A dark blue area represents the 68% confidence interval
A lighter blue area represents the 90% confidence interval
The confidence intervals widen as quarters progress.
(b) Dampening Effect:
X-axis: Quarters, ranging from 0 to 8
Y-axis: Percent, ranging from -0.0005 to 0.0015
A solid blue line represents the mean value
The line starts at about 0.0012, drops sharply to near 0 by quarter 1, then gradually rises to about 0.0005 by quarter 8
Similar shaded areas represent confidence intervals:
Dark blue for 68% confidence
Light blue for 90% confidence
The confidence intervals widen slightly as quarters progress.
Note at the bottom: Nominal compensation per employee are expressed in log growth rates. Light shaded areas represent 90 percent confidence intervals, dark shaded areas represent 68 percent confidence intervals, and the solid line represents the mean value.