Updating the Euro Area Phillips Curve: The Slope Has Increased
12 Pages Posted: 7 Jan 2015
Date Written: December 16, 2014
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 Classification: E31, E52, E32
Suggested Citation: Suggested Citation