Estimation of the Phillips Curve for Latvia
Aleksejs Meļihovs and
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Anna Zasova: Bank of Latvia
No 2007/03, Working Papers from Latvijas Banka
The current paper aims at estimating the formation mechanism of business inflation expectations to find out how the latter affect the inflation dynamics. To attain this goal, the authors estimated the traditional Phillips curve, new Keynesian Phillips curve and hybrid Phillips curve. The results obtained testify to a better explanatory power to describe the dynamics of Latvia's core inflation of the hybrid Phillips curve compared with the traditional and new Keynesian Phillips curves. Moreover, the outcomes of the research indicate that companies in Latvia adjust their output prices quite frequently implying that the pass-through of changes in inflation expectations to actual prices is quite prompt.
Keywords: Phillips curve; new Keynesian Phillips curve; hybrid Phillips curve; inflation persistence (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ltv:wpaper:200703
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