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Small open economy new keynesian phillips curve: derivation and application to Israel

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  • Alon Binyamini

    (Bank of Israel)

Abstract

A New Keynesian Phillips Curve is derived for a small open economy with the characteristics of the Israeli economy: price indexation to inflation of the Consumer Price Index and to depreciation of the Shekel against the US$. Estimation is then carried out, in order to study the inflation dynamic in Israel under the inflation targeting regime from 1995 to 2006. The main results show that the openness of small economy in general, and the characteristics of the Israeli economy in particular, induce significant channels of influence from the exchange rate in the transmission mechanism of the monetary policy.

Suggested Citation

  • Alon Binyamini, 2007. "Small open economy new keynesian phillips curve: derivation and application to Israel," Israel Economic Review, Bank of Israel, vol. 5(1), pages 67-92.
    • Handle: RePEc:boi:isrerv:v:5:y:2007:i:1:p:67-92
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    Cited by:

    1. Angeline B. Rohoia & Parmendra Sharma, 2021. "Do Inflation Expectations Matter for Small, Open Economies? Empirical Evidence from the Solomon Islands," JRFM, MDPI, vol. 14(9), pages 1-18, September.
    2. Eyal Argov & Emanuel Barnea & Alon Binyamini & Eliezer Borenstein & David Elkayam & Irit Rozenshtrom, 2012. "MOISE: A DSGE Model for the Israeli Economy," Bank of Israel Working Papers 2012.06, Bank of Israel.
    3. Benchimol, Jonathan, 2016. "Money and monetary policy in Israel during the last decade," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 103-124.
    4. Mr. Marco Airaudo & Mr. Edward F Buffie & Luis-Felipe Zanna, 2016. "Inflation Targeting and Exchange Rate Management In Less Developed Countries," IMF Working Papers 2016/055, International Monetary Fund.
    5. Aginta, Harry, 2023. "Revisiting the Phillips curve for Indonesia: What can we learn from regional data?," Journal of Asian Economics, Elsevier, vol. 85(C).
    6. Argov, Eyal, 2012. "The choice of a foreign price measure in a Bayesian estimated new-Keynesian model for Israel," Economic Modelling, Elsevier, vol. 29(2), pages 408-420.
    7. Buffie, Edward F. & Zanna, Luis-Felipe, 2018. "Limited Asset Market Participation And Determinacy In The Open Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 1937-1977, December.
    8. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.

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