that for the U.S. economy a decline in output longer than eleven quarters ceases to a ect inflation. A similar logic seems to hold for the euro area, as there is a limit to firms squeezing their margins in the downturn. This would imply that potential output and the structural rate of unemployment have declined, or increased, respectively, during the recession rather sharply, consistently with other evidence, see e.g. ECB (2012b).One possible interpretation of our new results is that the developments of inflation are reasonably in line with output, once larger flexibility in the trend component of output is allowed for.