The Phillips Curve at the ECB

51 Pages Posted: 5 May 2020

See all articles by Fabian Eser

Fabian Eser

European Central Bank (ECB)

Peter Karadi

European Central Bank (ECB)

Laura Moretti

European Central Bank (ECB)

Chiara Osbat

European Central Bank (ECB)

Date Written: May, 2020

Abstract

We explain the role of the Phillips Curve in the analysis of the economic outlook and the formulation of monetary policy at the ECB. First, revisiting the structural Phillips Curve, we highlight the challenges in recovering structural parameters from reduced-form estimates and relate the reduced-form Phillips Curve to the (semi-)structural models used at the ECB. Second, we identify the slope of the structural Phillips Curve by exploiting cross-country variation and by using high-frequency monetary policy surprises as instruments. Third, we present reduced-form evidence, focusing on the relation between slack and inflation and the role of inflation expectations. In relation to the recent weakness of inflation, we discuss the role of firm profits in the pass-through from wages to prices and the contribution of external factors. Overall, the available evidence supports the view that the absorption of slack and a firm anchoring of inflation expectations remain central to successful inflation stabilisation.

Keywords: European Central Bank, inflation, monetary policy, Phillips Curve

JEL Classification: E31, E52

Suggested Citation

Eser, Fabian and Karadi, Peter and Moretti, Laura and Osbat, Chiara, The Phillips Curve at the ECB (May, 2020). ECB Working Paper No. 20202400, Available at SSRN: https://ssrn.com/abstract=3593363

Fabian Eser (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Peter Karadi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Laura Moretti

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

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