Inflation Dynamics in Romania – a New Keynesian Perspective

Nicoleta Ciurila and Bogdan Muraraşu ()

Annals of University of Craiova - Economic Sciences Series, 2008, vol. 1, issue 36, 155-160

Abstract: We investigate in this paper the main factors which drive inflation in Romania: inflation persistence, inflation expectations and real economy variables. We estimate a reduced form hybrid New Keynesian Phillips Curve in order to determine the degree of inertia and the impact of forward looking expectations. As a proxy for real economic activity, we alternatively use the change in the real labour cost, output gap, the capacity utilization rate, the economic sentiment indicator and the unemployment gap. We find that the capacity utilization rate and the unemployment gap are good proxies for the real economic activity. Inflation inertia is more important in explaining CPI inflation than rational expectations confirming the fact that inflation expectations in Romania are still highly adaptive.

Keywords: New Keynesian Phillips Curve; inflation dynamics; GMM estimation; forward looking expectations (search for similar items in EconPapers)
JEL-codes: E00 E12 E31 P00 P24 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Journal Article: Inflation Dynamics in Romania - a New Keynesian Perspective (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:aio:aucsse:v:1:y:2008:i:11:p:155-160

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