As of 2013, trend inflation seems to have fallen a bit below 2 %, but only slightly so. In addition, inflation persistence – which is captured by the ρ in the Phillips curve equation – appears to have increased somewhat. This implies that shocks have a longer-lasting impact on inflation as a result of which inflation converges more slowly to its trend.
In this regard, the long period of low inflation could have led firms and unions to become more backwardlooking when setting prices and wages, making inflation more persistent. Or it could also reflect that the lower bound has somewhat affected monetary policy’s effectiveness in dealing with the shocks hitting the euro area economy.