Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260401 
Year of Publication: 
2022
Series/Report no.: 
IHS Working Paper No. 40
Publisher: 
Institut für Höhere Studien - Institute for Advanced Studies (IHS), Vienna
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 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.
Subjects: 
Euro area
instability
new Keynesian Phillips curve
nonlinearity
specification analysis
JEL: 
E31
E52
E58
F62
J11
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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