DP3100 | The Phillips Curves Across the Atlantic: It is the Price Curves that Differ

Publication Date

12/12/2001

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Abstract

The Paper highlights one critical difference between Europe and the US regarding the Phillips curve: the behaviour of prices. While they are quickly restored to an equilibrium level in the US, European prices are driven by highly counter-cyclical mark-ups. In bad times, European firms manage to keep their price high relative to cost, while their US counterparts are pressed into cuts and discounts of various forms. We show that this behaviour is the critical reason why Phillips curve look different across the Atlantic, much more than because of differences arising on the labour markets.