Is the Phillips curve still alive? Evidence from the euro area

Abstract

h i g h l i g h t s• The Phillips curve is estimated for the euro area and its five largest economies.• We employ an unobserved component model for inflation and unemployment.• The Phillips curve slope is negative and significant in EA and three countries.• The slope has not changed substantially since the Global Financial Crisis.

Does the Phillips curve help to forecast euro area inflation?

“…This is in line with evidence on declines in trend inflation in the euro area (see e.g. Ciccarelli and Osbat, 2017;Hindrayanto et al, 2019). The analysis does not allow to draw conclusions on the potential drivers of such declines.…”

“…32 The coefficients and log volatility of the residuals follow random walks. Similar models have been estimated for the euro area inflation by Hindrayanto et al (2019) 33 or by Stevens and Wauters (2018) 34 .…”

Inflation-Unemployment Trade-Offs In ASEAN-10

“…If there a continuous implementation of trade-off policy, a lower unemployment rate will accelerate the already rapid inflation rate and efforts to curb inflation tend to increase the unemployment rate that remains high. This is evidence in the studies by Karanassou & Sala (2010), Ruprah & Luengas (2011), Sachsida et al (2011), Dritsaki & Dritsaki (2012), Tesfaselassie & Wolters (2018), Donayre & Panovska (2018), and Hindrayanto et al (2019). They recorded an adverse effect of inflation on unemployment.…”

Phillips Curve: The Greek Case

“…Table 1 shows that a negative correlation coefficient between inflation and unemployment does not only appear in the case of Greece, but also in the cases of France, Italy, Portugal, Spain and Austria. Moreover, inflation appears to affect unemployment more severely in Spain, with other studies reaching similar conclusions (Hindrayanto et al 2019). On the other hand, it seems that inflation is not really correlated to unemployment in Germany.…”

“…In other words, some economists support that there is only one rate of unemployment compatible with steady inflationa 'natural rate' (Tobin 1995) as well as that the relation between inflation and unemployment could be more than coincidental (Friedman 1977), with a strict inflation policy not having a large impact on the unemployment volatility (Campolmi and Gnocchi 2016), whereas other economists support that that there is no clear long-run trade-off between inflation and the unemployment rate (Benati 2015) and that the Phillips curve relationship has weakened, with the curve becoming flatter (Occhino 2019). Finally, it is mentioned that the Phillips curve slope is heterogeneous across countries and the slope has not changed significantly since the global financial crisis (Hindrayanto et al 2019).…”