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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)

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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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Publisher 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;

Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
P00 - Economic Systems - - General - - - General
P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

References listed on IDEAS
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  1. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
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  2. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September. [Downloadable!] (restricted)
    Other versions:
  3. Campbell Leith & Jim Malley, 2007. "Estimated Open Economy New Keynesian Phillips Curves for the G7," Open Economies Review, Springer, vol. 18(4), pages 405-426, September. [Downloadable!] (restricted)
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  4. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  5. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
  6. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February. [Downloadable!] (restricted)
    Other versions:
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