Inflation pressure and European unemployment

While the recent failure of unemployment to fall in many OECD economies is often attributed to labour market rigidities, there is a strong cross-secti onal correlation between changes in unemployment since the last recession a nd changes in inflation over the same period (1993-1997). Furthermore, this linkage is dominated by the influence of initial (i.e. 1993) inflation. Th is can be interpreted in terms of two effects: countries with higher 1993 i nflation had less scope for relaxation of monetary policy, and may have exp erienced larger increases in expected inflation. These inflation pressure e ffects in turn are related to the EMU inflation convergence criteria.