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The European Phillips Curve: Does the NAIRU Exist?

  • Karanassou, Marika

    ()

    (Queen Mary, University of London)

  • Sala, Hector

    ()

    (Universitat Autònoma de Barcelona)

  • Snower, Dennis J.

    ()

    (Kiel Institute for the World Economy)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 876.

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Length: 32 pages
Date of creation: Sep 2003
Date of revision:
Publication status: published in: Applied Economics Quarterly, 2003, 49 (2), 93-121
Handle: RePEc:iza:izadps:dp876
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