Phillips Curve and Output Expectations: New Perspectives from the Euro Zone
DEM Working Papers,
When referring to the inﬂation trends over the last decade, economists speak of "puzzles": a “missing disinﬂation” puzzle in the aftermath of the Great Recession, and a ”missing inﬂation” one in the years of recovery to nowadays. To this, a specific "excess deflation" puzzle may be added during the post-crisis depression in the Euro Zone. The standard Phillips Curve model, in this context, has failed as the basic tool to produce reliable forecasts of future price developments, leading many scholars to consider this instrument to be no more adequate. The purpose of this paper is to contribute to this literature through the development of a newly specified Phillips Curve model, in which the inflation-expectation component is rationally related to the business cycle. The model is tested with the Euro Zone data 1999-2019 showing that inflation turns out to be consistently determined by output gaps and and experts' survey-based forecast errors, and that the puzzles can be explained by the interplay between these two variables.
IWH Bankruptcy Research
IWH Bankruptcy Research The Bankruptcy Research Unit of the Halle Institute for...
IWH Bankruptcy Update: Downward trend continues in January Considerably faster than the official statistics, the IWH...
IWH Economic Outlook 2021 New Wave of Infections Delays Economic Recovery in Germany ...
Selected Publications ...
Info Graphs Sometimes pictures say more than a thousand words. Therefore, we selected...
The maths behind gut decisions First carefully weigh up the costs and benefits and then make a rational...
East Germany Rearguard Only investments in education will lead to a further catch-up ...
The New Europe
The new Europe The financial crisis is largely over, yet confidence in the ECB and EU...