Published Papers

Unanticipated inflation, unemployment persistence and the New Keynesian Phillips curve

Date: 07/04/2025Author: George Alogoskoufis 0 Comments

George Alogoskoufis and Stelios Giannoulakis

Economica, Published Online April 2, 2025

This paper puts forward an analytically tractable dynamic stochastic general equilibrium model, with both labor and product market frictions. Frictions in the labor market arise from the power of labor market insiders to periodically pre-set nominal wages, without full current information. Product market frictions arise from monopolistic competition and staggered pricing. The model results in a dynamic expectations-augmented New Keynesian Phillips Curve (DEANKPC) that transcends the main limitations of the benchmark and hybrid NKPCs based on staggered pricing, as: (i) it is expressed in terms of unanticipated inflation since current inflation depends on prior expectations about its level; (ii) unemployment (output) and inflation persistence are endogenous; and (iii) the divine coincidence between the stabilization of inflation and employment (output) does not apply, rendering a Taylor-type interest rate rule optimal. Dynamic simulations reveal multifaceted inflation dynamics shaped by the interplay of price stickiness and labor market persistence. An empirical application to the Euro Area validates the DEANKPC’s superior forecasting performance, highlighting its relevance for understanding inflation dynamics and guiding effective monetary policy design.

Link to PDF of Accepted Manuscript

Link to the Published Paper in Economica

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The origins of the post-2010 Greek crisis and the pre-conditions – economic, political and institutional - for a sustained recovery of the Greek economy were examined recently by a number of prominent academics, many of whom possess extensive political experience in Greece. A selection of their contributions, first presented in a workshop at the London School of Economics, in December 2018, and a conference at the Fletcher School of Tufts University in April 2019, is collected in this e- book, edited by the organisers, George Alogoskoufis and Kevin Featherstone. With ramifications for both Greece and the Euro-Area as a whole, the contributions consider the constraints that derive from the structural linkages between the domestic and the European levels. While concerned with the core economic agenda, they place it within its political, social, and institutional contexts in order to have a more complete assessment. They ask what scope there is for recovery, the priorities that need to be set, and the prospects for their attainment. Many of the chapters have been updated to take into account developments since the Covid-19 pandemic in 2020. More details on the 2018 workshop and the 2019 conference that led to this e-book can be found in the link below.

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