Updating the Euro Area Phillips Curve: The Slope Has Increased

12 Pages Posted: 7 Jan 2015

See all articles by Sami Oinonen

Sami Oinonen

Bank of Finland - Monetary Policy

Maritta Paloviita

Bank of Finland - Research

Date Written: December 16, 2014

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 Classification: E31, E52, E32

Suggested Citation

Oinonen, Sami and Paloviita, Maritta, Updating the Euro Area Phillips Curve: The Slope Has Increased (December 16, 2014). Bank of Finland Research Discussion Paper No. 31/2014, Available at SSRN: https://ssrn.com/abstract=2545356 or http://dx.doi.org/10.2139/ssrn.2545356

Sami Oinonen

Bank of Finland - Monetary Policy ( email )

PO Box 160
00101 Helsinki
Finland

Maritta Paloviita (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 9 1831 (Phone)
+358 9 1832560 (Fax)

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