Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 31/2014:
Updating the euro area Phillips curve: the slope has increased

Sami Oinonen () and Maritta Paloviita ()

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.

Keywords: inflation; Phillips curve; cycle; (follow links to similar papers)

JEL-Codes: E31; E32; E52; (follow links to similar papers)

12 pages, December 16, 2014

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