caa a22 4500 467896275 CHVBK 20180406152805.0 cr unu---uuuuu 170328e20061101xx s 000 0 eng 10.1007/s00181-006-0057-6 doi (NATIONALLICENCE)springer-10.1007/s00181-006-0057-6 Paloviita Maritta Bank of Finland, P.O. Box 160, 00101, Helsinki, Finland aut Inflation Dynamics in the Euro Area and the Role of Expectations [Elektronische Daten] [Maritta Paloviita] This paper examines the empirical performance of the New Keynesian Phillips curve and its hybrid specification in the euro area. Instead of imposing rational expectations, direct measures, i.e. OECD forecasts, are used as empirical proxies for economic agents' inflation expectations. Real marginal costs are proxied by three alternative measures. The results suggest that once the rational expectations hypothesis is relaxed and directly measured expectations are used, the European inflation process can be modeled using the forward-looking New Keynesian Phillips curve. However, when allowing for possible non-rationalities in expectations, inflation can be modeled more accurately by the hybrid Phillips curve with the additional lagged inflation term. In this approach, output gap turns out to be at least as good as labor income share as a proxy for real marginal cost. Moreover, the inflation process seems to have become more forward-looking in the recent years of low and stable inflation. Springer-Verlag, 2006 Phillips curve nationallicence Expectations nationallicence Euro area nationallicence Empirical Economics Springer-Verlag 31/4(2006-11-01), 847-860 0377-7332 31:4<847 2006 31 181 https://doi.org/10.1007/s00181-006-0057-6 text/html Onlinezugriff via DOI 1 research-article jats NATIONALLICENCE 856 40 https://doi.org/10.1007/s00181-006-0057-6 text/html Onlinezugriff via DOI NATIONALLICENCE 100 1- Paloviita Maritta Bank of Finland, P.O. Box 160, 00101, Helsinki, Finland aut NATIONALLICENCE 773 0- Empirical Economics Springer-Verlag 31/4(2006-11-01), 847-860 0377-7332 31:4<847 2006 31 181 Metadata rights reserved Springer special CC-BY-NC licence nationallicence BK010053 XK010053 XK010000 NATIONALLICENCE NATIONALLICENCE NL-springer