Investigating the inflation-output-nexus for the euro area: Old questions and new results

Dieter Gerdesmeier, Hans-Eggert Reimers and Barbara Roffia

No 01/2023, Wismar Discussion Papers from Hochschule Wismar, Wismar Business School

Abstract: The relationship between inflation and real GDP growth is one of the most widely researched topics in macroeconomics. At the same time, it is certainly not exaggerated to claim that this nexus also stands at the heart of monetary policy, given the fact that low inflation in combination with high and sustained output growth should be the central objective of any sound economic policy. The latter notion becomes even more obvious, when taking account of the fact that many central banks all over the world have selected target levels for inflation and communicated them to the public. Against this background, it is of utmost importance for central banks to know more about the nature and form of the relationship between inflation and real GDP. This study tries to shed more light on the concrete shape of this relationship for the euro area and, more specifically, on the issue of possible regime shifts therein. The analysis provides strong evidence for non-linear effects in the euro area. As a by-product, the methods used allow for a quantification of the point of switch across the different regimes and it is found that this breakpoint closely matches the ECB's previous definitions of price stability and its new inflation target of 2%. While these results look encouraging, further research in this area seems warranted.

JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/273366/1/1851805486.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:hswwdp:012023

Access Statistics for this paper

More papers in Wismar Discussion Papers from Hochschule Wismar, Wismar Business School Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().