Is the Phillips curve still alive? Evidence from the euro area

Abstract

We estimate the Phillips curve for the euro area and its five largest economies over 1985–2017 using an unobserved component model for inflation and unemployment. Inflation expectations are modeled as the trend component of annualized HICP inflation. We have three results. First, the relationship between unemployment and inflation is negative and significant in the euro area, Germany, France, and the Netherlands. Second, the Phillips curve slope is heterogeneous across countries. Third, the slope has not changed significantly since the Global Financial Crisis.