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A Phillips Curve for the Euro Area

Laurence Ball () and Sandeep Mazumder ()

No 26450, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper asks whether a textbook Phillips curve can explain the behavior of core inflation in the euro area. A critical feature of the analysis is that we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery.

JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
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Working Paper: A Phillips curve for the euro area (2020) Downloads
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