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New Keynesian Phillips Curve in Lithuania

Ernestas Virbickas

No 14, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: The paper provides estimates for the New Keynesian Phillips curve (NKPC) in Lithuania. The paper considers the baseline and hybrid NKPC, the latter accounting for inflation inertia, under the closed and open economy frameworks. The estimates highlight the importance of expected and lagged inflation in the inflation formation process. The role of real marginal cost is found to be limited in shaping the dynamics of inflation. The study yields estimates for the underlying characteristics of pricing behaviour in Lithuania. The estimates show that the price duration stands at around 2.2–2.8 quarters, while the fraction of firms that adjust prices in a backward looking way amounts to around one third.

Keywords: New Keynesian Phillips curve; price stickiness; real marginal cost; labour income share (search for similar items in EconPapers)
JEL-codes: D40 E30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-12-14
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