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Updating the euro area Phillips curve: the slope has increased

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  • Oinonen, Sami
  • Paloviita, Maritta

Abstract

This paper examines recent changes in the cyclicality of euro area inflation. We estimate time-varying parameters for the hybrid New Keynesian Phillips curve using three alternative proxies for the output gap. Our analysis, which is based on the state-space method with Kalman filtering techniques, suggests that the slope of the euro area Phillips curve has become steeper since 2012. Thus, the current low level of inflation and persistently negative output gap increase the risk that euro area inflation will stay below the monetary policy target for an extended period.

Suggested Citation

  • Oinonen, Sami & Paloviita, Maritta, 2014. "Updating the euro area Phillips curve: the slope has increased," Bank of Finland Research Discussion Papers 31/2014, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2014_031
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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