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Accessible Unlicensed Requires Authentication Published by De Gruyter Oldenbourg August 4, 2018

The Impact of the Crisis and Unconventional Monetary Policy on European Inflation Dynamics

Evidence from a Three-Period Structural Model and Six Countries

Benjamin Schäfer ORCID logo
From the journal Review of Economics
An erratum for this article can be found here:


This study investigates the impact of the economic crisis in the late 2000s and early 2010s on European inflation dynamics using a hybrid New-Keynesian Phillips Curve (NKPC) during three distinct periods. The pre-crisis period from 1999 through mid-2007, the crisis period until August 2012, and finally the “Whatever-It-Takes”-period after the remark by ECB president Mario Draghi. The structural hybrid NKPC is estimated for six countries of the Euro area (Germany, France, Italy, Spain, The Netherlands and Austria) and for each of the three periods. The crisis and the subsequent reaction of the ECB both seem to have had a profound impact on the dynamics, as estimated parameters differ markedly between the periods. A discussion and interpretation of the results is provided.


I thank the CESifo GmbH München, especially Johanna Garnitz and Carmen Ikonomou-Baumann for providing data on European inflation expectations. Further, Deutsche Bundesbank, especially Jan Heller for discussions about seasonal adjustment, the participants of the Economics Research Seminar at Siegen University, the participants of the 12th ifo Workshop on Macroeconomics and Business Cycles in Dresden, especially Rolf Scheufele for excellent comments and discussion of an early version of this paper. Finally Tobias Gruhle, Carsten Hefeker, Karl Hofmann, Jonas Klamka, Karl-Josef Koch, Dominik Kowitzke, Qian Xinyi, Andreas Röhlig for fruitful discussions. All remaining errors are mine.


A Inflation Charts

Following are plots of the two inflation measures used in the present study, by country. Observe that the HICP plots look very similar, while the GDP-Deflator plots are very different, not only across countries also as compared to the respective HICP inflation rate plots.

B Equivalence of real marginal costs and the labour income share

Recall the production function in place is a simple Cobb-Douglas function. That is, real GDP is given by:


where At denotes total factor productivity, Kt is the capital stock, Nt is employed labour, and α is the production elasticity with respect to capital. Thus the marginal product of labour is

YtNt=(1α)AtKtαNtα(expand by Nt/Nt=1)=(1α)YtNt1

Recall further that (real) marginal costs are just (real) wages over the marginal product of labour:


where the numerator is total nominal wage income and the denominator is nominal GDP. Note further that by demeaning the log-series of the labour income share, the coefficient 11α drops out.


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Published Online: 2018-08-04
Published in Print: 2018-08-28

© 2018 Oldenbourg Wissenschaftsverlag GmbH, Published by De Gruyter Oldenbourg, Berlin/Boston