Inflation Convergence and the New Keynesian Phillips Curve in the Czech Republic

Katarina Daniskova and Jarko Fidrmuc

Czech Economic Review, 2011, vol. 5, issue 2, 099-115

Abstract: The New Keynesian Phillips Curve has become an important part of modern monetary policy models. It describes the relationship between inflation and real marginal cost, which is derived from micro-founded models with rational expectations, sticky prices, and forward and backward looking behaviour. This answers the previous critique of the Phillips Curve. We estimate several specifications of the New Keynesian Phillips Curve for the Czech Republic between 1996 and 2009. We show that the GMM suffers under the problem of weak instruments leading to biased estimates. In turn, the FIML is robust and yields significant estimates of structural parameters implying a strong forward looking behaviour.

Keywords: Inflation; New Keynesian Phillips Curve; marginal costs; output gap; real unit labour costs (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

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Working Paper: Inflation Convergence and the New Keynesian, Phillips Curve in the Czech Republic (2011)
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