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Testing The Nonlinearity Of The Phillips Curve. Implications For Monetary Policy

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Executive Summary

This paper studies the nonlinearity of the Phillips Curve and its implications for monetary policy. To investigate the trade-off between output gap and inflation volatility, the authors used a backward-looking model type. The data for their empirical analysis is obtained from the Area Wide Model (AWM) Database (from 1970 to 2008 for Euro area) and National Institute of Statistics (from 2000 to 2009 for Romania) and has quarterly frequency. The results of econometric tests indicate a significant estimated coefficient of the output gap for Romania, compared with the Eurozone; they find no significant evidence of nonlinearity of the Phillips curve in the European Monetary Union.

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