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Estimating open economy Phillips curves for the euro area with directly measured expectations

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  • Maritta Paloviita

Abstract

This paper examines euro-area inflation dynamics by estimating open economy New Keynesian Phillips curves based on the assumption that all imports are intermediate goods. Instead of imposing rational expectations a priori, Consensus Economics survey data and OECD inflation forecasts are used to proxy inflation expectations. The results suggest that, compared with a closed economy New Keynesian Phillips curve, euro-area inflation dynamics are captured better by the open economy specification. Moreover, in the open economy context, even if we allow for persistence in expectations, the hybrid specification of the New Keynesian Phillips curve is needed in order to properly capture the euro-area inflation process.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00779950903308760
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal New Zealand Economic Papers.

Volume (Year): 43 (2009)
Issue (Month): 3 ()
Pages: 233-254

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Handle: RePEc:taf:nzecpp:v:43:y:2009:i:3:p:233-254

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Related research

Keywords: New Keynesian Phillips curve; open economy; expectations; euro area;

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Cited by:
  1. Benkovskis, Konstantins & Caivano, Michele & D’Agostino, Antonello & Dieppe, Alistair & Hurtado, Samuel & Karlsson, Tohmas & Ortega, Eva & Várnai, Tímea, 2011. "Assessing the sensitivity of inflation to economic activity," Working Paper Series 1357, European Central Bank.
  2. Robert Anderton & Alessandro Galesi & Marco Lombardi & Filippo di Mauro, 2010. "Key Elements of Global Inflation," RBA Annual Conference Volume, in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
  3. Maritta Paloviita, 2009. "On the Generality of the New Keynesian Phillips Curves," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(55), pages 7-32, July - Se.
  4. Robert Anderton & Paul Hiebert, . "The Impact of Globalisation on the Euro Area Macroeconomy," Discussion Papers 09/14, University of Nottingham, GEP.

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