Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172482
Authors: 
Dany-Knedlik, Geraldine
Holtemöller, Oliver
Year of Publication: 
2017
Series/Report no.: 
IWH Discussion Papers 10/2017
Abstract: 
We investigate drivers of Euro area inflation dynamics using a panel of regional Phillips curves and identify long-run inflation expectations by exploiting the crosssectional dimension of the data. Our approach simultaneously allows for the inclusion of country-specific inflation and unemployment-gaps, as well as time-varying parameters. Our preferred panel specification outperforms various aggregate, uni- and multivariate unobserved component models in terms of forecast accuracy. We find that declining long-run trend inflation expectations and rising inflation persistence indicate an altered risk of inflation expectations de-anchoring. Lower trend inflation, and persistently negative unemployment-gaps, a slightly increasing Phillips curve slope and the downward pressure of low oil prices mainly explain the low inflation rate during the recent years.
Subjects: 
inflation dynamics
inflation expectations
trend inflation
nonlinear state space model
panel UCSV model
Euro area
JEL: 
C32
E5
E31
Document Type: 
Working Paper

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