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Instability and Nonlinearity in the Euro-Area Phillips Curve

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Author Info
Alberto Musso (European Central Bank)
Livio Stracca (European Central Bank)
Dick van Dijk (Econometric Institute, Erasmus University Rotterdam)

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Abstract

This paper provides a comprehensive analysis of the functional form of the euro-area Phillips curve over the past three decades. In particular, compared with previous literature, we analyze the stability of the relationship in detail, especially as regards the possibility of a time-varying mean of inflation. Moreover, we conduct a sensitivity analysis across different measures of economic slack. Our main findings are two. First, there is strong evidence of time variation in the mean and slope of the Phillips curve occurring in the early to mid-1980s, but not in inflation persistence once the mean shift is allowed for. As a result of the structural change, the Phillips curve became flatter around a lower mean of inflation. Second, we find no significant evidence of nonlinearity - in particular, in relation to the output gap.

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Publisher Info
Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 5 (2009)
Issue (Month): 2 (June)
Pages: 181-212
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Handle: RePEc:ijc:ijcjou:y:2009:q:2:a:6

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dino Martellato, 2008. "Economic Integration and Macroeconomic Convergence in the Euro Area," Working Papers 2008_34, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  2. Pierre Perron & Yohei Yamamoto, 2008. "On the Usefulness or Lack Thereof of Optimality Criteria for Structural Change Tests," Boston University - Department of Economics - Working Papers Series wp2008-006, Boston University - Department of Economics. [Downloadable!]
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