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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