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The Phillips Curves Across the Atlantic: It is the Price Curves that Differ

Author

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  • Cohen, Daniel
  • Farhi, Emmanuel

Abstract

The Paper highlights one critical difference between Europe and the US regarding the Phillips curve: the behaviour of prices. While they are quickly restored to an equilibrium level in the US, European prices are driven by highly counter-cyclical mark-ups. In bad times, European firms manage to keep their price high relative to cost, while their US counterparts are pressed into cuts and discounts of various forms. We show that this behaviour is the critical reason why Phillips curve look different across the Atlantic, much more than because of differences arising on the labour markets.

Suggested Citation

  • Cohen, Daniel & Farhi, Emmanuel, 2001. "The Phillips Curves Across the Atlantic: It is the Price Curves that Differ," CEPR Discussion Papers 3100, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3100
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    Citations

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    Cited by:

    1. Peter Flaschel & Göran Kauermann & Willi Semmler, 2007. "Testing Wage And Price Phillips Curves For The United States," Metroeconomica, Wiley Blackwell, vol. 58(4), pages 550-581, November.
    2. Razin, Assaf, 2004. "Aggregate Supply and Potential Output," CEPR Discussion Papers 4295, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Phillips curve; Mark-up; Labour market;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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