A Markov-Switching Model of Inflation: Looking at the future during uncertain times

Daniel Barraez and Carolina Pagliacci

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we analyze the dynamic of inflation in Venezuela, in the last eighteen years, through a Markov-switching estimation of a New Keynesian Phillips curve. Estimation is carried out using the EM algorithm. The model’s estimates distinguish between a “normal or backward looking” regime and a “rational expectation” regime consistent with episodes of high uncertainty regarding the performance of the economy. This characterization of regimes is based on two elements: the description of the process of formation of inflationary expectations, and the main economic events occurred during each regime.

Keywords: regime switching; Phillips curve; inflationary expectations (search for similar items in EconPapers)
JEL-codes: C2 D84 E31 (search for similar items in EconPapers)
Date: 2009-08
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Published in Analisis Economico 59.XXV(2010): pp. 25-46

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106550

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