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Updating the euro area Phillips curve: the slope has increased

Sami Oinonen and Maritta Paloviita ()

No 31/2014, Research Discussion Papers from Bank of Finland

Abstract: This paper examines recent changes in the cyclicality of euro area inflation. We estimate time-varying parameters for the hybrid New Keynesian Phillips curve using three alternative proxies for the output gap. Our analysis, which is based on the state-space method with Kalman filtering techniques, suggests that the slope of the euro area Phillips curve has become steeper since 2012. Thus, the current low level of inflation and persistently negative output gap increase the risk that euro area inflation will stay below the monetary policy target for an extended period. Keywords: inflation, Phillips curve, cycle

JEL-codes: E31 E52 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2014-12-16
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