Inflation Dynamics and the New Keynesian Phillips Curve in EU-4

36 Pages Posted: 24 Oct 2009

See all articles by Borek Vasicek

Borek Vasicek

Czech National Bank (CNB); European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Date Written: October 22, 2009

Abstract

The paper seeks to shed light on inflation dynamics of four new EU member states (the Czech Republic, Hungary, Poland and Slovakia). To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds forward-looking component, the backward-looking one is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.

Keywords: Inflation dynamics, New Keynesian Phillips curve, CEEC

JEL Classification: C32, E31

Suggested Citation

Vasicek, Borek, Inflation Dynamics and the New Keynesian Phillips Curve in EU-4 (October 22, 2009). William Davidson Institute Working Paper No. 971, Available at SSRN: https://ssrn.com/abstract=1492733 or http://dx.doi.org/10.2139/ssrn.1492733

Borek Vasicek (Contact Author)

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

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