This paper finds that participants in the European Central Bank’s Survey of Professional Forecasters have submitted forecasts that are consistent with a (mostly forward-looking) New Keynesian Phillips Curve for the euro area. The estimation results suggest that euro-area inflation forecasts have reacted less to unemployment forecasts after the start of the financial crisis but another cost measure (energy inflation) remains significant. This finding is consistent with a flatter Phillips Curve in the euro area. However, the reasons suggested by the International Monetary Fund for this finding, namely a better anchoring of inflation expectations and increases in structural unemployment do not seem to find support in the survey data. Instead, downward wage rigidities may be playing a prominent role.
downward wage rigidities inflation new Keynesian Phillips curve panel data Survey of Professional Forecasters Unemployment