This paper studies the relationship between inflation, output, money and interest rates in the euro area, using data spanning 1980 2000. The P* model is shown to have considerable empirical support. Thus, the price gap' or, equivalently, the real money gap' (the gap between current real balances...

We develop and estimate a structural model of inflation that allows for a fraction of firms that use a backward looking rule to set prices. The model nests the purely forward looking New Keynesian Phillips curve as a particular case. We use measures of arginal cost as the relevant determinant of...

The optimal currency area (OCA) concept is central to the economic analysis of monetary unions, as it clearly identifies the relevant optimizing tradeoff: extension of the area over which a single currency is used enhances allocative efficiency but reduces the possibility of tailoring monetary...

In conventional macroeconomic thought, price flexibility stabilizes the economy. The more quickly prices fall (or inflation decreases) in a demand-induced recession, the faster output returns to its full-employment level. An alternative tradition, however, suggests that price flexibility can be...