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Sources and Channels of Nonlinearities and Instabilities of the Phillips Curve: Results for the Euro Area and Its Member States
[working paper]
Corporate Editor
Institut für Höhere Studien (IHS), Wien
Abstract
This paper presents evidence for sources and channels of nonlinearities and instabilities of the new Keynesian Phillips curve (NKPC) for the euro area and all but four member states over the last two decades prior to the COVID-19 crisis. The approach rests upon misspecification testing using auxilia... view more
This paper presents evidence for sources and channels of nonlinearities and instabilities of the new Keynesian Phillips curve (NKPC) for the euro area and all but four member states over the last two decades prior to the COVID-19 crisis. The approach rests upon misspecification testing using auxiliary regressions based on the standard open-economy hybrid NKPC. Using a large number of specifications, this approach allows to systematically, i. e., based on a literature review, disentangle the evidence for nonlinearities and instabilities of the NKPC according to sources and channels. For the euro area and most considered member states, there is substantial evidence for nonlinearities and instabilities. The relatively most important channels of nonlinearities and instabilities are similar across countries, whereas the relatively most important sources differ across countries. The results strongly indicate the need for considering nonlinear NKPC relationships in empirical analyses and also point towards potentially useful nonlinear specifications.... view less
Keywords
Eurozone; stability; EU member state; epidemic
Classification
National Economy
Economic Policy
Free Keywords
COVID-19; Coronavirus; instability; new Keynesian Phillips curve; nonlinearity; specification analysis
Document language
English
Publication Year
2022
City
Wien
Page/Pages
40 p.
Series
IHS Working Paper, 40
Status
Published Version; reviewed