a column by Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco for VOX: CEPR’s Policy Portal
What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve.
Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle.
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