Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries

Jaromir Baxa, Miroslav Plašil and Bořek Vašíček ()

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: The purpose of this paper is to provide a novel look at the evolution of inflation dynamics in selected Central European (CE) countries. We use the lens of the New Keynesian Phillips Curve (NKPC) nested within a time-varying framework. Exploiting a time-varying regression model with stochastic volatility estimated using Bayesian techniques, we analyze both the closed and open-economy version of the NKPC. The results point to significant differences between the inflation processes in three CE countries. While inflation persistence has almost disappeared in the Czech Republic, it remains rather high in Hungary and Poland. In addition, the volatility of inflation shocks decreased quickly a few years after the adoption of inflation targeting in the Czech Republic and Poland, whereas it remains quite stable in Hungary even after ten years' experience of inflation targeting. Our results thus suggest that the degree of anchoring of inflation expectations varies across CE coutries. In addition, we found some evidence that the 'structural' parameters of the NKPC are somewhat related to the macroeconomic environment.

Keywords: Bayesian model averaging; Central European countries; inflation dynamics; New Keynesian Phillips curve; time-varying parameter. (search for similar items in EconPapers)
JEL-codes: C11 C22 E31 E52 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Changes in inflation dynamics under inflation targeting? Evidence from Central European countries (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2012/04

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