Updating the Euro Area Phillips Curve: The Slope Has Increased

Abstract

This paper examines recent changes in the cyclicality of euro area inflation. We estimate timevarying 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.

Commodity Price and Inflation Dynamics: Evidence From Briics

“…By using energy, oil, metal and food price indices, we find that, amongst all BRIICS minus Brazil, oil and energy have a significant predictive power over inflation expectations in BRIICS. Our findings on oil and energy commodities support the recent literature (Paradiso and Rao, 2012;Millard and Shakir 2013;Oinonen and Paloviita, 2014;Renou-Maissant, 2019), which argues for a pass-through effect of oil price shocks to inflation. Meanwhile, food price index has only significant predictive power over inflation expectations in India and Indonesia.…”

Is Oil Price Still Driving Inflation?

“…It is therefore relevant to consider the real oil price (Mehra, 2004;Hooker, 2002;Van den Noord and André, 2007;Gordon, 2013). Moreover, as advocated by many authors, including De Gregorio et al (2007), Van den Noord and André (2007), Oinonen and Paloviita (2014) and Baffes et al (2015), the price of oil is measured in domestic currency. 10…”

Monetary Policy, Rational Confidence, and Neo-Fisherian depressions

“…More recent works, mostly based on European data, find a "steepening" of the PC in the aftermath of the Great Recession (e.g. Riggi and Venditti, 2014;Bank of Ireland, 2014;Oinonen and Paloviita, 2014), with the estimated slope around 0.4.…”