A note on the stability of the New Keynesian Phillips Curve in Europe

Peter Tillmann

Applied Economics Letters, 2010, vol. 17, issue 3, 241-245

Abstract: This note investigates how the explanatory power of the forward-looking New Keynesian Phillips Curve evolves over time. We exploit the present-value implications of the model and use VAR forecasts to assess whether the model matches the behaviour of actual inflation in the Euro area. A set of rolling regressions shows that the model's explanatory power varies substantially over the sample. Regime changes in the underlying monetary framework, i.e. realignment crises in the European Monetary System, the Maastricht treaty and, eventually, the introduction of European Monetary Union, are reflected in a deterioration of the model's explanatory power.

Date: 2010
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DOI: 10.1080/13504850701720262

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