The areas of economic policy dealing with the allocation of production factors capital and labour have always had a prominent position in empirical economics even long before the latest international financial and economic turmoil. However, the slow pace of economic recovery in some hard-hit South European economies, in spite of a continued low interest rate policy and initiated labour market reforms, has brought the effectiveness of monetary policy and labour market policy to the fore. Most of the empirical studies in this field address the effect of factor market policy on production indicators, while the present dissertation approaches the issue of effectiveness from a different angle and focusses on price transmission as an assessment of economic policy measures. By using a microeconomic model, it can be shown that price developments on downstream markets reflect adverse impacts of factor market policy. Accordingly, the impact of monetary policy is evaluated by the transmission of bank’s refinancing costs to loan prices, while the labour market policy's impact is evaluated by the transmission of regulated labour costs to product prices. The effectiveness of monetary policy is assessed on the basis of the conventional and unconventional ECB measures aiming at the restoration of the monetary transmission mechanism. In the bank-dominated European financial system a high interest rate pass-through to loan rates reflects a high effectiveness of monetary policy as it reveals that bank lending and therefore the real economy is stimulated by monetary policy. The effectiveness of labour market policy is assessed by introducing minimum wages in the German construction sector, which aimed at the protection against foreign competition and retaining employment. In this case, a high pass-through from regulated wages to product prices reflects negative adverse effects because - assuming unchanged demand and ordinary goods - rising prices as a consequence to raised minimum wages indicates reduced output and employment. The econometric modelling of the interest rate pass-through mechanism suggests a complete decoupling between ECB key interest and loan rates in the hard-hit countries during the peak of European debt crises. The interest rate link could only be re-established after the extensive liquidity provision was additionally flanked by a negative deposit facility rate. Therefore, it can be concluded that the ECB temporarily waived the opportunity of effectively controlling loan markets in favour of supporting struggling banks and sovereign debt markets. The econometric analysis of the price pass-through mechanism following wage regulations in the German construction sector suggests adverse effects in form of declining production and employment in East Germany. In West Germany, the absence of any significant product price reaction indicates that the implemented minimum wage in West Germany was too low in comparison to the predominantly paid wages and hence had no effect. This asymmetry of effects can be traced back to the leveraging role of the West German construction employers' association in the minimum wage bargaining committee. It appears that West German construction industry successfully protected itself from inner German competition by reducing the East German labour cost advantage.    «

The areas of economic policy dealing with the allocation of production factors capital and labour have always had a prominent position in empirical economics even long before the latest international financial and economic turmoil. However, the slow pace of economic recovery in some hard-hit South European economies, in spite of a continued low interest rate policy and initiated labour market reforms, has brought the effectiveness of monetary policy and labour market policy to the fore. Most of...    »