Research Discussion Papers, Bank of Finland
No 6/2013:
How have inflation dynamics changed over time? Evidence from the euro area and USA
Sami Oinonen ()
, Maritta Paloviita ()
and Lauri Vilmi ()
Abstract: This paper analyzes euro area and U.S. inflation dynamics
since the beginning of the 1990s by estimating New Keynesian hybrid
Phillips curves with time-varying parameters. We measure inflation
expectations by subjective forecasts from Consensus Economics survey and so
do not assume rational expectations. Both rolling regressions and
state-space models are employed. The results indicate that in both economic
areas the inflation dynamics have steadily become more forward-looking over
time. We also provide evidence that the impact of the output gap on
inflation has increased in recent years. Overall, diminished inflation
persistence emphasizes the role of credible monetary policy in inflation
dynamics.
Keywords: inflation; Phillips curve; time-varying parameters; survey expectations; (follow links to similar papers)
JEL-Codes: C22; C51; E31; (follow links to similar papers)
36 pages, May 6, 2013
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