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

Abstract

Abstract 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.