Has euro-area inflation persistence changed over time?

This paper analyzes the stability over time of the econometric process for Euro-area in nation since 1970, focusing in particular on the behaviour of the so-called persistence parameter (the sum of the coeffcients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the Euro-area in ation process. Full-sample estimates of the persistence parameter are generally close to one, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New-Keynesian Phillips curve.

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Year of publication:	2004-04-01
Authors:	O'Reilly, Gerard ; Whelan, Karl
Publisher:	European Central Bank
Subject:	EU-Staaten \| EU countries \| Europäische Wirtschafts- und Währungsunion \| European Economic and Monetary Union \| Inflation

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Extent:	483328 bytes 49 p. application/pdf
Series:	Working paper series / European Central Bank ; 335
Type of publication:	Book / Working Paper
Language:	English
Classification:	E31 - Price Level; Inflation; Deflation ; Inflation ; European Economic and Monetary Union ; EU ; Economic development. Economic growth ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok