Do Aggregate Demand Factors Influence Current Inflation Developments?

Fabio Rumler and Maria Valderrama ()

Monetary Policy & the Economy, 2008, issue 2, 10–82

Abstract: The relationship between inflation developments and aggregate demand is usually modeled with a Phillips curve. This study estimates the Phillips curve for Austria and, for the sake of comparison, for the euro area as well as for four euro area member countries. In order to test the robustness of our results, we estimate both the traditional and the New Keynesian Phillips Curve (NKPC) for the period from 1970 to 2007. We also investigate whether the relationship between economic activity and inflation has changed over time. The results show that there was indeed a significant relationship between inflation and the output gap in most countries; but its coefficient diminished over the years, and became insignificant in almost all countries toward the end of the estimation period. Exceptions are Austria and the Netherlands: For these countries the estimates are not significant, and for Austria we get contradictory results. We can conclude from this and from the observation that the output gap in the countries under review is now slightly negative, or at best closed, that the current rise in inflation is not the result of an overheating economy.

Keywords: demand-driven inflation; traditional Phillips curve; New Keynesian Phillips Curve (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.oenb.at/dam/jcr:cb20948d-d477-4985-844 ... es_3_tcm16-88557.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:onb:oenbmp:y:2008:i:2:b:3

Ordering information: This journal article can be ordered from
Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria

Access Statistics for this article

Monetary Policy & the Economy is currently edited by Gerhard Fenz and Maria Teresa Valderrama

More articles in Monetary Policy & the Economy from Oesterreichische Nationalbank (Austrian Central Bank) P.O. Box 61, A-1011 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Rita Glaser-Schwarz ().