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The European Phillips Curve: Does the NAIRU Exist?

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Author Info
Karanassou, Marika
Sala, Hector
Snower, Dennis J.

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Abstract

This paper has two aims. First, it provides simple theoretical models that highlight two channels whereby monetary shocks have permanent real effects and the interactions between these channels. Second, it presents an empirical dynamic model, covering a panel of EU countries, and derives the implied long-run inflation-unemployment tradeoff. Our results suggest that the tradeoff is far from vertical. We also find that wage persistence plays a larger role than price persistence in generating the tradeoff, but that the two forms of persistence are complementary in giving monetary policy its long-run real effects. Our results call for a reassessment of the European macroeconomic experience.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4102.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4102

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Related research
Keywords: business cycles forward-looking expectations homogeneous dynamic panels inflation monetary policy nominal inertia panel unit root tests Phillips curve unemployment

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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References listed on IDEAS
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.:
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  5. Lindbeck, Assar & Snower, Dennis J., 1999. "Price Dynamics and Production Lags," IZA Discussion Papers 33, Institute for the Study of Labor (IZA).
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Full references

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. Marika Karanassou & Hector Sala & Dennis Snower, 2007. "Long-Run Inflation-Unemployment Dynamics: The Spanish Phillips Curve and Economic Policy," Kiel Working Papers 1326, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  2. Beissinger, Thomas, 2004. "Strukturelle Arbeitslosigkeit in Europa: Eine Bestandsaufnahme," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 389, University of Regensburg, Department of Economics. [Downloadable!]
  3. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Andrea Vaona & Dennis Snower, 2006. "Increasing Returns to Scale and the Long-Run Phillips Curve," Kiel Working Papers 1277, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  5. Jan Gottschalk & Ulrich Fritsche, 2005. "The New Keynesian Model and the Long-Run Vertical Phillips Curve : Does It Hold for Germany?," Discussion Papers of DIW Berlin 521, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  6. Heinz-Peter Spahn, 2004. "Learning in Macroeconomics and Monetary Policy: The Case of an Open Economy," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 236/2004, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
  7. Heinz Handler, 2004. "From Hard Currency Policy to Monetary Union," Macroeconomics 0408008, EconWPA. [Downloadable!]
    Other versions:
  8. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Discussion Papers 2008-08, School of Economics, The University of New South Wales. [Downloadable!]
  9. Peter Funk & Bettina Kromen, 2006. "Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve," Working Paper Series in Economics 29, University of Cologne, Department of Economics. [Downloadable!]
  10. Janet L. Yellen, 2004. "Stabilization policy: a reconsideration," Speech, Federal Reserve Bank of San Francisco, issue Jul 1. [Downloadable!]
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