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A Phillips curve for the euro area

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  • Ball, Laurence
  • Mazumder, Sandeep

Abstract

This paper asks whether a textbook Phillips curve can explain the behavior of core inflation in the euro area. A critical feature of the analysis is that we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery. JEL Classification: E31, E32

Suggested Citation

  • Ball, Laurence & Mazumder, Sandeep, 2020. "A Phillips curve for the euro area," Working Paper Series 2354, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20202354
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    References listed on IDEAS

    as
    1. Bobeica, Elena & Sokol, Andrej, 2019. "Drivers of underlying inflation in the euro area over time: a Phillips curve perspective," Economic Bulletin Articles, European Central Bank, vol. 4.
    2. Gert Peersman & Ine Van Robays, 2009. "Oil and the Euro area economy," Economic Policy, CEPR;CES;MSH, vol. 24, pages 603-651, October.
    3. Ciccarelli, Matteo & Osbat, Chiara, 2017. "Low inflation in the euro area: Causes and consequences," Occasional Paper Series 181, European Central Bank.
    4. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 161-193.
    5. Lis, Eliza & Porqueddu, Mario, 2018. "The role of seasonality and outliers in HICP inflation excluding food and energy," Economic Bulletin Boxes, European Central Bank, vol. 2.
    6. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    core inflation; euro area; median inflation; missing disinflation; missing inflation; Phillips curve;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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