{"title":"Is the slope of the euro area Phillips curve steeper than it seems? Heterogeneity and identification","authors":"","doi":"10.1016/j.jimonfin.2024.103158","DOIUrl":null,"url":null,"abstract":"<div><p>Heterogeneity in Phillips Curve slopes among members of a monetary union can lead to biased to estimates of the union-wide ‘average’ slope in reduced form regressions. The intuition is that in a monetary union with heterogeneous regional Phillips curve slopes, the central bank, aiming at stabilizing demand shocks, will react stronger to shocks in regions with steep slopes compared to shocks in regions with flat slopes. Using a simple New-Keynesian model of a monetary union we show that when failing to account for this heterogeneity in the estimation, reduced form estimates of the union-wide ‘average’ slope suffer from a sizable bias. Empirically, we show that a similar bias exists in EMU data and slope estimates that adequately control for slope heterogeneity are steeper than those from reduced form OLS regressions.</p></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":null,"pages":null},"PeriodicalIF":2.8000,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0261560624001451/pdfft?md5=d636edfd0488dc426d2fcb7982cd8071&pid=1-s2.0-S0261560624001451-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Money and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0261560624001451","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
Heterogeneity in Phillips Curve slopes among members of a monetary union can lead to biased to estimates of the union-wide ‘average’ slope in reduced form regressions. The intuition is that in a monetary union with heterogeneous regional Phillips curve slopes, the central bank, aiming at stabilizing demand shocks, will react stronger to shocks in regions with steep slopes compared to shocks in regions with flat slopes. Using a simple New-Keynesian model of a monetary union we show that when failing to account for this heterogeneity in the estimation, reduced form estimates of the union-wide ‘average’ slope suffer from a sizable bias. Empirically, we show that a similar bias exists in EMU data and slope estimates that adequately control for slope heterogeneity are steeper than those from reduced form OLS regressions.
期刊介绍：
Since its launch in 1982, Journal of International Money and Finance has built up a solid reputation as a high quality scholarly journal devoted to theoretical and empirical research in the fields of international monetary economics, international finance, and the rapidly developing overlap area between the two. Researchers in these areas, and financial market professionals too, pay attention to the articles that the journal publishes. Authors published in the journal are in the forefront of scholarly research on exchange rate behaviour, foreign exchange options, international capital markets, international monetary and fiscal policy, international transmission and related questions.
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