TY - JOUR
T1 - European inflation dynamics
AU - Galí, Jordi
AU - Gertler, Mark
AU - López-Salido, J. David
N1 - Funding Information:
This paper was prepared for the International Seminar on Macroeconomics, hosted by the Bank of Finland in Helsinki, June 16–17, 2000. We thank the comments of our discussants, Francesco Giavazzi, and Jeremy Nalewaik, three anonymous referees, the editor, Harald Uhlig, as well as those provided by Oliver Blanchard, Jeff Fuhrer, Bob King, Argia Sbordone and Jim Stock. We have also benefited from comments of seminar participants at the Banco de Portugal Conference on Monetary Economics, Guimaraes, June 12–14, 2000, the Conference on Monetary Policy Challenges in the 21st Century – A Transatlantic Perspective, October 2000 Georgetown University, The Bank of Spain, ECB, UCL, LBS, Rochester, CEMFI, and CFS. We thank Ricardo Mestre for providing us with the Euro area data. Galı́ and Gertler acknowledge financial support from the National Science Foundation, the C.V. Starr Center for Applied Economics, and CREI. The views expressed here are those of the authors and do not represent the view of the Bank of Spain.
PY - 2001
Y1 - 2001
N2 - We provide evidence on the fit of the New Phillips Curve (NPC) for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have stronger forward-looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
AB - We provide evidence on the fit of the New Phillips Curve (NPC) for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have stronger forward-looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
KW - EMU
KW - Inflation
KW - Phillips curve
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U2 - 10.1016/S0014-2921(00)00105-7
DO - 10.1016/S0014-2921(00)00105-7
M3 - Article
AN - SCOPUS:0035005619
SN - 0014-2921
VL - 45
SP - 1237
EP - 1270
JO - European Economic Review
JF - European Economic Review
IS - 7
ER -