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Karl Whelan

22 April 2004
WORKING PAPER SERIES - No. 335
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Abstract
This paper analyzes the stability over time of the econometric process for Euro-area inflation since 1970, focusing in particular on the behaviour of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the Euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to one, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New-Keynesian Phillips curve.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
Network
Eurosystem inflation persistence network
24 November 2004
WORKING PAPER SERIES - No. 417
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Abstract
Despite their popularity as theoretical tools for illustrating the effects of nominal rigidities, some have questioned whether models based on Taylor-style staggered contracts can match the persistence of the empirical inflation process. This paper presents some general theoretical results about Taylor-style models. It is shown that these models do not have a problem matching high auto-correlations for inflation. However, they fail to explain a key feature of reduced-form Phillips-curve regressions: The positive dependence of inflation on its own lags. It is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Network
Eurosystem inflation persistence network
22 June 2005
OCCASIONAL PAPER SERIES - No. 29
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Abstract
Do asset prices affect real activity? This question has taken on a new importance in recent years, as asset values first surged at the end of 1990s and, thereafter, dramatically retreated. This report reviews the available theoretical and empirical evidence regarding asset price and wealth effects in Europe and some other major economies. The main focus of this report is on consumption effects via the wealth channel, reflecting the bulk of literature on the effects of asset prices. However, asset price effects on investment via the Tobin
JEL Code
D1 : Microeconomics→Household Behavior and Family Economics
D3 : Microeconomics→Distribution
D9 : Microeconomics→Intertemporal Choice
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
26 July 2007
WORKING PAPER SERIES - No. 784
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Abstract
Calvo-style models of nominal rigidities currently provide the dominant paradigm for understanding the linkages between wage and price dynamics. Recent empirical implementations stress the idea that these models link inflation to the behaviour of the labour share of income. Gali, Gertler, and Lopez-Salido (2001) argue that the model explains the combination of declining inflation and labour shares in euro area. In this paper, we show that with realistic parameters, the canonical Calvo-style model cannot explain this outcome. In addition, we show that the model fails very badly in sectoral data. We examine the elements underlying the decline in the labour share in Europe, and conclude that the key factors are related to technological and labour market developments not accounted for in the standard New-Keynesian framework.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Network
ECB/CEPR labour market workshop on wage and labour cost dynamics