Research Discussion Papers, Bank of Finland
No 11/2000:
Asymmetry and the Problem of Aggregation in the Euro Area
David G Mayes ()
and Matti Virén ()
Abstract: This paper highlights the implications for EU
macroeconomic policy at a relatively disaggregated level when key economic
relationships are nonlinear or asymmetric. Using data for the EU and OECD
countries we show that there are considerable non-linearities and
asymmetries in the Phillips and Okun curves. High unemployment has a
relatively limited effect in pulling inflation down while low unemployment
can be much more effective in driving it up. Downturns in the economy are
both more rapid and sustained in driving unemployment up than recoveries
are in bringing it down. There is considerable variety in these
relationships and in IS curves across not just countries but also sectors
and regions.
Keywords: aggregation; asymmetry; monetary policy; nonlinear models; Okun curve; Phillips curve; (follow links to similar papers)
JEL-Codes: G32; J41; J51; (follow links to similar papers)
44 pages, September 20, 2000
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