Antonio Conti, Elisa Guglielminetti, Marianna Riggi, 13 February 2020

The weak relationship between wage dynamics and unemployment in the euro area since the Global Crisis is widely perceived as one of the main causes of the ‘twin puzzle’ of missing disinflation between 2009 and 2011, and missing inflation thereafter. This column attributes the weak response of nominal wage growth to employment dynamics since 2008 to the countercyclical behaviour of labour productivity, which is driven, in turn, by the exceptionally high persistence of the downturn and the subsequent recovery.

Laurence Ball, Sandeep Mazumder, 04 February 2020

Inflation did not fall as much as the textbook Phillips curve would predict during Europe’s recessions of 2008 and 2011, and it has not risen as much as the theory would predict during recovery. This column argues that adapting the Phillips curve to use a weighted median of industry inflation rates results in a much better fit with observed inflation. Adding the effect of headline inflation shocks improves the fit further.

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