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Inflation Dynamics in Romania – a New Keynesian Perspective

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Author Info

  • Nicoleta CIURILA
  • Bogdan MURARASU

    (Academy of Economic Studies)

Abstract

We investigate in this paper the main factors which drive inflation in Romania: inflation persistence, inflation expectations and real economy variables. We estimate a reduced form hybrid New Keynesian Phillips Curve in order to determine the degree of inertia and the impact of forward looking expectations. As a proxy for real economic activity, we alternatively use the change in the real labour cost, output gap, the capacity utilization rate, the economic sentiment indicator and the unemployment gap. We find that the capacity utilization rate and the unemployment gap are good proxies for the real economic activity. Inflation inertia is more important in explaining CPI inflation than rational expectations confirming the fact that inflation expectations in Romania are still highly adaptive.

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File URL: http://feaa.ucv.ro/AUCSSE/0036v1-009.pdf
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Bibliographic Info

Article provided by University of Craiova, Faculty of Economics and Business Administration in its journal Annals of Computational Economics.

Volume (Year): 1 (2008)
Issue (Month): 36 (May)
Pages: 155-160

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Handle: RePEc:aio:aucsse:v:1:y:2008:i:11:p:155-160

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Related research

Keywords: New Keynesian Phillips Curve; inflation dynamics; GMM estimation; forward looking expectations;

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References

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  1. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Jordi Galí & Mark Gertler & J. David López-Salido, 2000. "European Inflation Dynamics," Banco de Espa�a Working Papers 0020, Banco de Espa�a.
  3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  4. Jordi Gali & Mark Gertler & David Lopez-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," NBER Working Papers 11788, National Bureau of Economic Research, Inc.
  5. Arratibel, Olga & Rodriguez-Palenzuela, Diego & Thimann, Christian, 2002. "Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective," Working Paper Series 0132, European Central Bank.
  6. Campbell Leith & Jim Malley, 2003. "Estimated Open Economy New Keynesian Phillips Curves for the G7," CESifo Working Paper Series 834, CESifo Group Munich.
  7. Jordi Galí & J David López-Salido, 2001. "A New Phillips curve for Spain," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 174-203 Bank for International Settlements.
  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  9. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
  10. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February.
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Cited by:
  1. Morar Triandafil, Cristina & Brezeanu, Petre & Huidumac, Catalin & Morar Triandafil, Adrian, 2011. "The Drivers of the CEE Exchange Rate Volatility - Empirical Perspective in the context of the Recent Financial Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 212-229, March.

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