This Selected Issues paper for France provides an analytical framework to explain the consequences of the downward shift in the unemployment/wages relationship. This framework is also used to analyze possible changes in the equilibrium unemployment rate resulting from cuts in employers’ social security contributions and movements in the user cost of capital. The contribution of wage moderation to the reduction in the equilibrium unemployment is quantified. The paper also addresses the question of fiscal benefits of job-rich growth in France during 1997–2000.
This paper examines inflation dynamics in the United States since 1960, with a particular focus on the Great Recession. A puzzle emerges when Phillips curves estimated over 1960-2007 are ussed to predice inflation over 2008-2010: inflation should have fallen by more than it did. We resolve this puzzle with two modifications of the Phillips curve, both suggested by theories of costly price adjustment: we measure core inflation with the median CPI inflation rate, and we allow the slope of the Phillips curve to change with the level and vairance of inflation. We then examine the hypothesis of anchored inflation expectations. We find that expectations have been fully "shock-anchored" since the 1980s, while "level anchoring" has been gradual and partial, but significant. It is not clear whether expectations are sufficiently anchored to prevent deflation over the next few years. Finally, we show that the Great Recession provides fresh evidence against the New Keynesian Phillips curve with rational expectations.
This paper considers the problem of jointly decomposing a set of time series variables
into cyclical and trend components, subject to sets of stochastic linear restrictions
among these cyclical and trend components. We derive a closed form solution to an
ordinary problem featuring homogeneous penalty term difference orders and static
restrictions, as well as to a generalized problem featuring heterogeneous penalty term
difference orders and dynamic restrictions. We use our Generalized Multivariate Linear
Filter to jointly estimate potential output, the natural rate of unemployment and the
natural rate of interest, conditional on selected equilibrium conditions from a calibrated
New Keynesian model.
This Selected Issues paper estimates the potential output and the associated nonaccelerating inflation rate of unemployment in the euro area. The study presents a conceptual framework for analyzing currency movements, and highlights the transmission of import price shocks on consumer prices. The paper compares different measures of trend money growth, and analyzes the monetary conditions. The study describes the stability and growth pact, outlines a simple framework for studying fiscal policy behavior, and estimates European Union countries' past cyclical fiscal policy responses to output growth fluctuations.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.