The Slope of the Euro Area Phillips Curve: Always and Everywhere the Same?

Johanna Amberger, Ralf Fendel
2017 Applied Economics and Finance  
To determine whether the sensitivity of inflation to changes in the business cycle varies over time, hybrid new Keynesian Phillips curves are formulated in state space form and estimated via the Kalman filter. Analyses cover the Euro Area aggregate and eleven Euro Area countries. Results confirm the increasingly important role of inflation expectations. While the Phillips curve flattens until 2007, slope coefficients increase considerably with the financial crisis in 2007/08 on the basis of
more » ... on the basis of output gaps. Nonetheless, stable or decreasing slope coefficients are observed on the basis of unemployment gaps, indicating strong dependence on the driving variable used in estimations. Overall, differences in cross-country Phillips curve parameters are decreasing, indicating a convergence of Euro Area countries' inflation dynamics since 1990.
doi:10.11114/aef.v4i3.2296 fatcat:zkiww7foencubj2yvkvhyd6klm