Estimating Europe’s Natural Rates from a forward-looking Phillips curve

Tino Berger

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: This paper re-estimates potential output, the NAIRU, and the core inflation rate using aggregated euro area data. The empirical model consists of a Phillips curve linking inflation to unemployment. An Okun-type relationship is used to link the output gap to cyclical unemployment. Using recent developments in the field of New Keyenesian economics, the Phillips curve is forward-looking. The model further accounts for new developments in unobserved component models by allowing (i) for correlation between shocks to the trend and the cycle and (ii) structural breaks in the drift of potential output.

Pages: 24 pages
Date: 2008-01
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:08/498

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