Is the Slope of the Euro Area Phillips Curve Steeper than It Seems? Heterogeneity and Identification

Johannes Schuffels, Clemens Kool, Lenard Lieb and Tom van Veen

No 10103, CESifo Working Paper Series from CESifo

Abstract: Heterogeneity in Phillips Curve slopes among members of a monetary union can lead to downward biases to estimates of the union-wide slope in reduced form regressions. The intuition is that in a monetary union with heterogeneous regional Phillips Curve slopes, the central bank, aiming at stabilizing demand shocks, will react stronger to shocks in regions with steep slopes compared to shocks in regions with flat slopes. Using a simple New-Keynesian model of a monetary union that omitting controls for this heterogeneity, we show that reduced form estimates of the union-wide slope suffer from a substantial bias towards zero. Empirically, we show that controlling for slope heterogeneity in Euro Area data increases reduced form estimates of the slope in the period since 2009.

Keywords: Phillips curve; heterogeneity; monetary meeting (search for similar items in EconPapers)
JEL-codes: E24 E31 E58 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Is the slope of the euro area Phillips curve steeper than it seems? Heterogeneity and identification (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10103

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