Estimating Phillips Curves in Turbulent Times Using the ECB's Survey of Professional Forecasters

39 Pages Posted: 6 Feb 2012

See all articles by Gary Koop

Gary Koop

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics

Luca Onorante

European Central Bank (ECB); European University Institute

Date Written: February 1, 2012

Abstract

This paper uses forecasts from the European Central Bank’s Survey of Professional Forecasters to investigate the relationship between inflation and inflation expectations in the euro area. We use theoretical structures based on the New Keynesian and Neoclassical Phillips curves to inform our empirical work and dynamic model averaging in order to ensure an econometric specification capturing potential changes. We use both regression-based and VAR-based methods. The paper confirms that there have been shifts in the Phillips curve and identifies three sub-periods in the EMU: an initial period of price stability, a few years where inflation was driven mainly by external shocks, and the financial crisis, where the New Keynesian Phillips curve outperforms alternative formulations. This finding underlines the importance of introducing informed judgment in forecasting models and is also important for the conduct of monetary policy, as the crisis entails changes in the effect of expectations on inflation and a resurgence of the 'sacrifice ratio'.

Keywords: inflation expectations, survey of professional forecasters, Phillips curve, Bayesian, financial crisis

JEL Classification: E31, C53, C11

Suggested Citation

Koop, Gary and Onorante, Luca, Estimating Phillips Curves in Turbulent Times Using the ECB's Survey of Professional Forecasters (February 1, 2012). ECB Working Paper No. 1422. Available at SSRN: https://ssrn.com/abstract=1997080

Gary Koop (Contact Author)

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom

Luca Onorante

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

European University Institute

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
107
Abstract Views
556
rank
265,378
PlumX Metrics