Analysing euro area inflation outlook with the Phillips curve

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Title: Analysing euro area inflation outlook with the Phillips curve
Author: Oinonen, Sami ; Vilmi, Lauri
Organization: Bank of Finland
Series: BoF Economics Review
Series number: 5/2021
Year of publication: 2021
Publication date: 8.9.2021
Pages: 25
Subject (yso): euroalue; inflaatio; odotukset; ennusteet
Keywords: Phillipsin käyrä; NKPC
JEL: E31; E37
Other keywords: euro area; inflation expectations; inflation forecasting; Phillips curve
Abstract: This paper presents the New Keynesian Phillips Curve (NKPC) -based framework for analysing euro area inflation outlook. Our NKPC specification, that relies on market- and surveybased inflation expectations, explains well euro area inflation dynamics. Its forecasting performance is also comparable to the performance of the ECB’s official forecasts in both short- and long-horizons. Overall, the NKPC is a useful tool for monitoring euro area inflation outlook. Thanks to its fast and light updating procedure it provides almost real-time information on inflation outlook.

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