Analysing euro area inflation outlook with the Phillips curve

Abstract

This paper presents the New Keynesian Phillips Curve (NKPC) -based framework for analysing euro area inflation outlook. Our NKPC specification, that relies on market- and surveybased inflation expectations, explains well euro area inflation dynamics. Its forecasting performance is also comparable to the performance of the ECB’s official forecasts in both short- and long-horizons. Overall, the NKPC is a useful tool for monitoring euro area inflation outlook. Thanks to its fast and light updating procedure it provides almost real-time information on inflation outlook.