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Inflation Convergence and the New Keynesian Phillips Curve in the Czech Republic

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Abstract

The New Keynesian Phillips Curve has become an important part of modern monetary policy models. It describes the relationship between inflation and real marginal cost, which is derived from micro-founded models with rational expectations, sticky prices, and forward and backward looking behaviour. This answers the previous critique of the Phillips Curve. We estimate several specifications of the New Keynesian Phillips Curve for the Czech Republic between 1996 and 2009. We show that the GMM suffers under the problem of weak instruments leading to biased estimates. In turn, the FIML is robust and yields significant estimates of structural parameters implying a strong forward looking behaviour.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal AUCO Czech Economic Review.

Volume (Year): 5 (2011)
Issue (Month): 2 (August)
Pages: 099-115

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Handle: RePEc:fau:aucocz:au2011_099

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Keywords: Inflation; New Keynesian Phillips Curve; marginal costs; output gap; real unit labour costs;

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Cited by:
  1. Jaromir Baxa & Miroslav Plasil & Borek Vasicek, 2012. "Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries," Working Papers 2012/04, Czech National Bank, Research Department.
  2. Katarína Danišková & Jarko Fidrmuc, 2012. "Meta-Analysis of the New Keynesian Phillips Curve," Working Papers 314, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).

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