Inflation Dynamics and the New Keynesian Phillips Curve in Four Central European Countries

Bořek Vašíček ()

Emerging Markets Finance and Trade, 2011, vol. 47, issue 5, 71-100

Abstract: This paper seeks to shed light on the inflation dynamics of four new central European EU members: 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, with the following results: (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, and (3) although inflation holds a forward-looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be adaptive, rather than rational price setting of local firms.

Keywords: Central European countries; GMM estimation; inflation dynamics; New Keynesian Phillips curve (search for similar items in EconPapers)
Date: 2011
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