The European Phillips Curve: Does the NAIRU Exist?

Marika Karanassou (), Hector Sala and Dennis Snower

No 876, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper has two aims. First, it provides simple theoretical models that highlight two channels whereby monetary shocks have permanent real effects and the interactions between these channels. Second, it presents an empirical dynamic model, covering a panel of EU countries, and derives the implied long-run inflation-unemployment tradeoff. Our results suggest that the tradeoff is far from vertical. We also find that wage persistence plays a larger role than price persistence in generating the tradeoff, but that the two forms of persistence are complementary in giving monetary policy its long-run real effects. Our results call for a reassessment of the European macroeconomic experience.

Keywords: inflation; Phillips curve; nominal inertia; monetary policy; business cycles; forward-looking expectations; unemployment; homogeneous dynamic panels; panel unit root tests (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 E5 J3 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2003-09
New Economics Papers: this item is included in nep-eec, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

Published - published in: Applied Economics Quarterly, 2003, 49 (2), 93-121

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Working Paper: The European Phillips Curve: Does the NAIRU Exist? (2003)
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