Aguiar, A. and Martins, M. (2005). Testing the significance and the non-linearity of the Phillips trade-off in the euro area. Empirical Economics, 30(3):665–691.
Akerlof, G., Dickens, W., and Perry, G. (1996). The macroeconomics of low inflation. Brookings Papers on Economic Activity, 1:1–59.
Badarinza, C. and Buchmann, M. (2009). Inflation perceptions and expectations in the euro area.
Baghli, M., Cahn, C., and Fraisse, H. (2007). Is the inflation-output nexus asymmetric in the euro area? Economics Letters, 94(1):1–6.
Ball, L. and Mankiw, N. (1994). Asymmetric price adjustment and economic fluctuations. Economic Journal, 104(423):247–261.
Ball, L. and Mazumdar, S. (2011). Inflation dynamics and the great recession. Brookings Papers on Economic Activity, pages 337–405.
Ball, L., Leigh, D., and Loungani, P. (2013). Okun’s Law: Fit at fifty? NBER Working Paper No. 18668.
- Ball, L., Mankiw, N., and Romer, D. (1988). The New Keynesian economics and the output-inflation trade-off. Brookings Papers on Economic Activity, 1:1–65.
Paper not yet in RePEc: Add citation now
Barnes, M. and Olivei, G. (2003). Inside and outside bounds: Threshold estimates of the Phillips curve. New England Economic Review (Federal Reserve Bank of Boston).
Ben Cheikh, N. (2012). Asymmetric exchange rate pass-through in the euro area: New evidence from smooth transition models. Economics: The Open-Access, Open-Assessment E-Journal, 6(2012-39).
Biggs, M., Mayer, T., and Pick, A. (2009). Credit and economic recovery. DNB Working Paper No. 218.
Binder, M. and Gross, M. (2013). Regime-switching global vector autoregressive models. ECB Working Paper Series, 1569.
Buchmann, M. (2009). Nonparametric hybrid Phillips curves based on subjective expectations — Estimates for the euro area. ECB Working Paper Series, 1119.
- c Copyright 1996 by the American Economic Association. Posted by permission. One copy may be printed for individual use only.
Paper not yet in RePEc: Add citation now
Calvo, G. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12(3):383–398.
Canova, F. and Nicolo, G. D. (2002). Monetary disturbances matter for business cycle fluctuations in the G-7. Journal of Monetary Economics, 49(6):1131–1159.
Capistran, C. and Timmermann, A. (2009). Disagreement and biases in inflation expectations. Journal of Money, Credit and Banking, 41(2-3):365–396.
Carlson, J. and Parkin, M. (1975). Inflation expectations. Economica, 42:123–138.
Chan, J., Clark, T., and Koop, G. (2015). A new model of inflation, trend inflation, and long-run inflation expectations. FED Cleveland Working Paper No. 15-20.
Clark, P. and Laxton, D. (1997). Phillips curves, Phillips lines and the unemployment costs of overheating. IMF Working Paper, 17.
- Clark, P., Laxton, D., and Rose, D. (1996). Asymmetries in the US output-inflation nexus. IMF Staff Papers, 43(1):216–251.
Paper not yet in RePEc: Add citation now
Clark, P., Laxton, D., and Rose, D. (2001). An evolution of alternative monetary policy rules in a model with capacity constraints. Journal of Money, Credit, and Banking, 33(1):42–64.
Cover, J. (1992). Asymmetric effects of positive and negative money supply shocks. The Quarterly Journal of Economics, 107(4):1261–1282.
De Long, J. and Summers, L. (1988). How does macroeconomic policy affect output? Brookings Papers on Economic Activity, 2:433–480.
De Masi, P. (1997). IMF estimates of potential output: Theory and practive. IMF Working Paper No. 97/177.
De Veirman, E. (2007). Which nonlinearity in the Phillips curve? The absence of accelerating deflation in Japan. Reserve Bank of New Zealand Working Paper, 536.
Debelle, G. and Laxton, D. (1997). Is the Phillips curve really a curve? Some evidence for Canada, the United Kingdom, and the United States. IMF Staff Papers, 44(2):249–282.
Demertzis, M. and Hallatt, A. (1998). Asymmetric transmission mechanisms and the rise in European unemployment: A case of structural differences or of policy failures? Journal of Economic Dynamics and Control, 22(6):869–886.
- Dempster, A., Laird, N., and Rubin, D. (1977). Maximum likelihood from incomplete data via the EM algorithm. Journal of the Royal Statistical Society, Series B, 39(1):1–38.
Paper not yet in RePEc: Add citation now
Dolado, J., Maria-Dolores, R., and Naveira, M. (2005). Are monetary policy reaction functions asymmetric? The role of nonlinearity in the Phillips curve. European Economic Review, 49(2):485– 503.
- Donayre, L. and Panovska, I. (2015). Asymmetric exchange rate pass-through behavior over the business cycle. Working Paper available on SSRN.
Paper not yet in RePEc: Add citation now
- Dupasquier, C. and Ricketts, N. (1998). Nonlinearities in the output-inflation relationship. Price Stability, Inflation Targets, and Monetary Policy, 14:131–173.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Acknowledgements This work has benefited from useful discussions with Elena Bobeica, Inês Cabral, Matteo Cicarelli, VÃÂtor Constâncio, Marek Jarocinski, Michele Lenza, Carlos Montes-Galdon, Dieter Nautz, and Chiara Osbat. The views are those of the authors.
Paper not yet in RePEc: Add citation now
ECB Working Paper 2004, January 2017 Clark, P., Laxton, D., and Rose, D. (1995). Capacity constraints, inflation and the transmission mechanism: Forward-looking versus myopic policy rules. IMF Working Paper, 75.
ECB Working Paper 2004, January 2017 Faust, J. (1998). The robustness of identified VAR conclusions about money. Carnegie-Rochester Conference Series on Public Policy, 49(1):207–244.
- ECB Working Paper 2004, January 2017 Figure 10: Shift of cross-country distribution of Phillips curve parameter estimates on output gaps under expansion and recession regimes Note: The Kernel densities reflect the cross-country distribution of the normalised coefficients across the EU countries, as reported in Tables 5-10. For a given output gap measure, the cross-country distributions reflect the estimates from the three underlying schemes concerning the lag setting of inflation expectations, as well as the two different schemes regarding the regime-probability-based and the 0-1 output gap indicator-based weighting. See text for further details.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 13: Linear and regime-switching VAR — Model A — Sign-restricted impulse responses to expansionary monetary policy shock Note: The chart collection shows the sign-restricted impulse responses of Model A’s variables up to an 18-month horizon, to a-25bps shock to the euro area short term interest rate. INFMoM: Euro area consumer price inflation month-onmonth (MoM) log percent change. RGDPMoM: Real GDP growth MoM. NGDPMoM: nominal GDP growth, not included in the model as such but derived as the sum of the responses of real GDP growth and inflation (see text for some caveats). The upper/lower end of the green shaded area mark the 10th/90th percentiles of the response distributions. Cumulative responses are reported in the text boxes embedded in the charts. The model behind the responses corresponds to the HP-R model in Table 15.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 14: Linear and regime-switching VAR — Model B — Sign-restricted impulse responses to expansionary monetary policy shock Note: The chart collection shows the sign-restricted impulse responses of Model B’s variables up to an 18-month horizon, to a-25bps shock to the euro area short-term interest rate. NBVMoM and NBI denote bank loan volume growth and loan interest rates (both new business). The upper/lower end of the green shaded area mark the 10th/90th percentiles of the response distributions. Cumulative responses are reported in the text boxes embedded in the charts (for the new business interest rates the numbers in the box reflect averages). The model behind the responses corresponds to the EC-I model in Table 16.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 15: Linear and regime-switching VAR — Model B — Sign-restricted impulse responses to positive credit supply shock Note: The chart collection shows the sign-restricted impulse responses of Model B’s variables up to an 18-month horizon, to a-25bps shock to the euro area loan interest rate. NBVMoM and NBI denote bank loan volume growth and loan interest rates (both new business). The upper/lower end of the green shaded area mark the 10th/90th percentiles of the response distributions. Cumulative responses are reported in the text boxes embedded in the charts (for the short-term interest rate the numbers in the box reflect averages). The model behind the responses corresponds to the EC-I model in Table 17.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 16 (ctd): Linear and regime-switching VAR — Model C — Sign-restricted impulse responses to euro effective exchange rate depreciation shock Note: The chart collection shows the sign-restricted impulse responses of Model C’s variables up to an 18-month horizon, to a-1 log percentage point shock to the euro effective exchange rate. ToT: Terms of trade, not as such contained in the model, with its response derived as the XTD minus MTD responses. NCGDPMoM: nominal GDP growth proxy, not contained in the model, derived as the sum of real GDP growth and core inflation responses (see text for caveats). EFX: Euro effective exchange rate. The upper/lower end of the green shaded area mark the 10th/90th percentiles of the response distributions. Cumulative responses are reported in the text boxes embedded in the charts. The model behind the responses corresponds to the EC-R model in Table 18.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 16: Linear and regime-switching VAR — Model C — Sign-restricted impulse responses to euro effective exchange rate depreciation shock Note: The chart collection shows the sign-restricted impulse responses of Model C’s variables up to an 18-month horizon, to a-1 log percentage point shock to the euro effective exchange rate. CINF: Core euro area inflation month-on-month. WAG: Nominal wages month-on-month growth. MTD: import price deflator inflation month-on-month. XTD: export price deflator inflation month-on-month. The upper/lower end of the green shaded area mark the 10th/90th percentiles of the response distributions. Cumulative responses are reported in the text boxes embedded in the charts. The model behind the responses corresponds to the EC-R model in Table 18.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 3: Euro area inflation, expected inflation, and output gap (1999M01-2016M03) Note: The INFE2 and INFE5 expectation measures differ with respect to the window length based on which the underlying inflation perceptions were computed, which is set to 2 years and 5 years respectively for the INFE2 and INFE5 measure.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 5: Smooth regime probabilities based on different real activity/output gap measures for the euro area Note: The regime probabilities are inferred using a Markov-switching model based on the respective real activity/output gap measures. The sample for estimation and regime inference spans the period from 1999M01-2016M03. The regime probabilities are used as a basis for conducting all regime-conditional (that is, weighted least squares-type) regressions at the euro area level. In addition, a 0-1 indicator-based approach will be used which sets the recession/weak growth (expansion/strong growth) regime probability to 1 as soon as a measure turns negative (positive). See text for details.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 8: Real GDP growth and output gap measures for the EU28 (1999M01-2016M03) Note: The charts aim to provide a visual impression of how the collection of the 28 EU countries’ real activity measures evolved over the 1999M01-2016M03 period. See text for further details.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Figure 9: Consumer price inflation and inflation expectations for the EU28 (1999M01-2016M03) Note: The charts aim to provide a visual impression of how the collection of the 28 EU countries’ consumer price inflation and inflation expectation measures have evolved over the 1999M01-2016M03 period. See text for further details.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Kandil, M. (1995). Asymmetric nominal flexibility and economic fluctuations. Southern Economic Journal, 61:674–695.
Paper not yet in RePEc: Add citation now
ECB Working Paper 2004, January 2017 Smets, F. and Wouters, R. (2002). Openness, imperfect exchange rate pass-through and monetary policy. Journal of Monetary Economics, 49(5):947–981.
- ECB Working Paper 2004, January 2017 Table 1: Literature overview (chronological) — Nonlinear Phillips curves Note: The table provides an overview of the empirical literature, in chronological order, which examines nonlinearity in the Phillips curve. The detailed references can be found in the bibliography.
Paper not yet in RePEc: Add citation now
- ECB Working Paper 2004, January 2017 Table 4: Regime-conditional standard deviations of inflation and output gap measures INF GAPs R1 R2 R1 R2 GDP-R 0.86 0.90 0.92 1.48 GDP-I 0.91 0.85 1.13 1.29 HP-R 1.03 0.80 0.63 0.61 HP-I 1.04 0.78 0.63 0.59 EC-R 0.59 0.64 1.01 0.78 EC-I 0.64 1.01 0.90 1.05 IMF-R 0.57 0.58 1.14 1.09 IMF-I 0.58 0.94 1.09 1.00 JL4-R 0.59 1.04 1.12 1.48 JL4-I 0.58 1.04 1.10 1.59 JL6-R 0.51 0.93 0.89 0.77 JL6-I 0.65 0.92 0.50 1.32 Note: The table reports regime-conditional standard deviations (STDs) of year-on-year inflation and real activity measures, all expressed in log percentage points, over the 1999M1-2016M03 period. -R and-I attached to the gap measures in the first column denote the regime-switching mechanism, that is, either a Markov-Switching probabilitybased weighting or a 0-1 indicator-based weighting based on the underlying slack measures. See text for further details.
Paper not yet in RePEc: Add citation now
Ehrmann, M., Ellison, M., and Valla, N. (2001). Regime-dependent impulse response functions in a Markov-switching vector autoregression model. Bank of Finland Disucssion Paper No. 11/2001.
- Eisner, R. (1997). New view of the NAIRU. In: Improving the global economy: Keynesian and the growth in output and employment.
Paper not yet in RePEc: Add citation now
Eliasson, A. (2001). Is the short-run Phillips curve nonlinear? Empirical evidence for Australia, Sweden and the United States. Sveriges Riksbank Working Paper, 124.
Evans, P. (1986). Does the potency of monetary policy vary with capacity utilization? CarnegieRochester Conference Series on Public Policy, 24:303–332.
Fabiani, S., Druant, M., Hernando, I., Kwapil, C., Landau, B., Loupias, C., Martins, F., Matha, T., Sabbatini, R., Stahl, H., and Stokman, A. (2006). What firms’ surveys tell us about price-setting behaviour in the euro area. International Journal of Central Banking, 2(3).
- Figure 4: Euro area real GDP growth and different output gap measures (1999M01-2016M03) Note: The output gap measures include an HP-filtered gap (GAP-HP), the ones from the European Commission (GAP-EC) and the IMF (GAP-IMF), as well as two measures adopted from Jarocinski and Lenza (2016), referred to as GAP-JL4 and GAP-JL6. GDPG denotes real GDP growth YoY.
Paper not yet in RePEc: Add citation now
Filardo, A. (1998). New evidence on the output cost of fighting inflation. Economic Review, Federal Reserve Bank of Kansas City, pages 33–61.
- Fisher, T. (1989). Efficiency wages: A literature survey. Bank of Canada Working Paper.
Paper not yet in RePEc: Add citation now
Forsells, M. and Kenny, G. (2002). The rationality of consumers’ inflation expectations: Survey-based evidence for the euro area. ECB Working Paper No. 163.
- Friedman, M. (1968). The role of monetary policy. American Economic Review, 58:1–17.
Paper not yet in RePEc: Add citation now
Froot, K. and Rogoff, K. (1995). Perspectives on PPP and Long-Run Real Exchange Rates, volume 3, pages 1647–1688. Elsevier. NBER Working Paper #4952.
Gali, J. and Gertler, M. (1999). Inflation dynamics: A structural econometric analysis. Journal of Monetary Economics, 44(2):195–222.
Goldfajn, I. and Werlang, S. (2000). The pass-through from depreciation to inflation: A panel study. Textos para discusso 423, Department of Economics PUC-Rio (Brazil).
Gordon, R. (1997). The time-varying NAIRU and its implications for economic policy. Journal of Economic Perspectives, 11(1):11–32.
Gordon, R. (2011). History of the Phillips curve. Manuscript, North Western University.
Gruene, L., Semmler, W., and Stieler, M. (2015). Using nonlinear model predictive control for dynamic decision problems in economics. Journal of Economic Dynamics and Control, pages 112–133.
Hamilton, J. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57(2):357–384.
Hamilton, J. (1990a). Analysis of time series subject to changes in regime. Journal of Econometrics, 45(1-2):39–70.
- Hamilton, J. (1990b). Analysis of time series subject to changes in regime. Journal of Econometrics, 45:39–70.
Paper not yet in RePEc: Add citation now
- Hamilton, J. (1994). Time series analysis. Princeton University Press.
Paper not yet in RePEc: Add citation now
Hasanov, M., Arac, A., and Telatar, F. (2010). Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey. Economic Modelling, 27.
Havik, K., Morrow, K., Orlandi, F., Planes, C., Raciborski, R., Roeger, W., Rossi, A., Thum-Thysen, A., and Vandermeulen, V. (2014). The production function methodology for calculating potential growth rates and outputs gaps. European Commission Economic Papers No. 535.
Huh, H. and Jang, I. (2007). Nonlinear Phillips curve, sacrifice ratio, and the natural rate of unemployment. Economic Modelling, 24:797–813.
Huh, H., Lee, H., and Lee, N. (2009). Nonlinear Phillips curve, NAIRU and monetary policy rules. Empirical Economics, 37:131–151.
Isard, P., Laxton, D., and Eliasson, A. (2001). Inflation targeting with NAIRU uncertainty and endogenous policy credibility. Journal of Economic Dynamics and Control, 25(1-2):115–148.
Jarocinski, M. and Lenza, M. (2016). An inflation-predicting measure of the output gap in the euro area. ECB Working Paper No. 1966.
Karras, G. (1996). Are the output effects of monetary policy asymmetric? Evidence from a sample of European countries. Oxford Bulletin of Economics and Statistics, 58(2):267–278.
Kumar, A. and Orrenius, P. (2015). A closer look at the Phillips curve using state-level data. Federal Reserve Bank of Dallas Working Paper.
Laxton, D., Meredith, G., and Rose, D. (1995). Asymmetric effects of economic activity on inflation: Evidence and policy implications. IMF Staff Papers, 42(2):344–374.
- Laxton, D., Rose, D., and Tetlow, R. (1993). Is the Canadian Phillips curve nonlinear? Bank of Canada Working Paper, 7.
Paper not yet in RePEc: Add citation now
- Lucas, R. (1972). Econometric testing of the natural rate hypothesis. In The Econometrics of Price Determination, edited by O. Eckstein.
Paper not yet in RePEc: Add citation now
Lucas, R. (1973). Some international evidence on output-inflation trade-offs. American Economic Review, 63:326–334.
Macklem, T. (1997). Capacity constraints, price adjustment, and monetary policy. Bank of Canada Review, pages 39–56.
- Marco Gross European Central Bank, Frankfurt am Main, Germany; email: marco.gross@ecb.europa.eu Willi Semmler Albert and Vera List Academic Center, The New School, New York, United States; email: semmlerw@newschool.edu European Central Bank, 2017 Postal address 60640 Frankfurt am Main, Germany Telephone +49 69 1344 0 Website www.ecb.europa.eu All rights reserved. Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. This paper can be downloaded without charge from www.ecb.europa.eu, from the Social Science Research Network electronic library or from RePEc: Research Papers in Economics. Information on all of the papers published in the ECB Working Paper Series can be found on the ECB’s website.
Paper not yet in RePEc: Add citation now
Mayes, D. and Viren, M. (2002). Asymmetry and the problem of aggregation in the euro area. Empirica, 29(1):47–73.
Musso, A., Stracca, L., and van Dijk, D. (2009). Instability and nonlinearity in the euro area Phillips curve. International Journal of Central Banking, 5:181–212.
Nobay, A. and Peel, D. (2000). Optimal monetary policy with a nonlinear Phillips curve. Economics Letters, 67:159–164.
- Orphanides, A. and van Norden, S. (2002). The unreliability of outp-gap estimates in real time. The Review of Economics and Statistics, 84(4):569–583.
Paper not yet in RePEc: Add citation now
- Phelps, E. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica, 34(135):254–281.
Paper not yet in RePEc: Add citation now
Phillips, A. (1958). The relation between unemployment and the rate of change of money wage rates in the United Kingdom. Economica, 25(100):283–299.
Roberts, J. (1997). Is inflation sticky. Journal of Monetary Economics, 39(2):173–196.
Rogoff, K. (1996). The purchasing power parity puzzle. Journal of Economic Literature, 34:647–68.
Rudebusch, G. and Svensson, L. (1999). Policy rules and inflation targeting. In: Monetary Policy Rules (ed. J. Taylor).
- Semmler, W., Greiner, A., and Zhang, W. (2005). Monetary and fiscal policy in the euro area. Elsevier.
Paper not yet in RePEc: Add citation now
Sims, C. (2006). Rational inattention: Beyond the linear-quadratic case. American Economic Review, 96(2):158–163.
Stiglitz, J. (1984). Price rigidities and market structure. American Economic Review, 74:350–355.
Stiglitz, J. (1997). Reflections on the natural rate hypothesis. Journal of Economic Perspectives, 11(1):3–10.
Svensson, L. (1997). Inflation forecast targeting: Implementing and monitoring inflation targets.
Tambakis, D. (1999). Monetary policy with a nonlinear Phillips curve and asymmetric loss. Studies in Nonlinear Dynamics and Econometrics, 3(4).
Tambakis, D. (2009). Optimal monetary policy with a convex Phillips curve. The BE Journal of Macroeconomics, 9.
Taylor, J. (2000). Low inflation, pass-through, and the pricing power of firms. European Economic Review, 44(7):1389–1408.
Telatar, E. and Hasanov, M. (2006). The asymmetric effects of monetary shocks: The case of Turkey.
- Turner, D. (1995). Speed limit and asymmetric effects from the output gap in the major seven economies. OECD Economic Studies, 24(1):57–88.
Paper not yet in RePEc: Add citation now
Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2):381–419.
Weise, C. (1999). The asymmetric effects of monetary policy: A nonlinear vector autoregression approach. Journal of Money, Credit, and Banking, 31(1):85–108.
Zhang, L. (2005). Sacrifice ratios with long-lived effects. International Finance, 8(2):231–262.