Aggregation and euro area Phillips curves
This paper examines the issue of the impact of aggregation in the empirical analysis of euro area labour markets. A Phillips Curve describing the adjustment of unit labour costs is estimated at the national and aggregate level for the 5 largest euro area countries. Potential sources of aggregation bias are investigated such as differences in parameter coefficients and a lack of correlation in the independent variables across countries as well as the potentially offsetting statistical averaging effect. Finally the out-of-sample forecasting performance of both approaches is evaluated. The results point to some limited advantages of analysing wage developments at the national rather than at the area-wide level. The paper concludes that if major advantages in undertaking national analysis do exist, they are likely to arise from the ability to develop country-specific structures for the Phillips Curves and not from aggregation biases that emerge when a common structure is used. JEL Classification: C52, C53, E24, J30
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- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001.
"Money demand in the euro area: do national differences matter?,"
Temi di discussione (Economic working papers)
405, Bank of Italy, Economic Research and International Relations Area.
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"A system approach for measuring the euro area NAIRU,"
Springer, vol. 29(2), pages 311-341, 05.
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- Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
- Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 0017, European Central Bank.
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- Silvia Fabiani & Alberto Locarno & Gian Paolo Oneto & Paolo Sestito, 1997. "NAIRU: Incomes Policy and Inflation," OECD Economics Department Working Papers 187, OECD Publishing.
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