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New Keynesian Phillips Curve in Lithuania

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  • Ernestas Virbickas

    ()
    (Bank of Lithuania)

Abstract

The paper provides estimates for the New Keynesian Phillips curve (NKPC) in Lithuania. The paper considers the baseline and hybrid NKPC, the latter accounting for inflation inertia, under the closed and open economy frameworks. The estimates highlight the importance of expected and lagged inflation in the inflation formation process. The role of real marginal cost is found to be limited in shaping the dynamics of inflation. The study yields estimates for the underlying characteristics of pricing behaviour in Lithuania. The estimates show that the price duration stands at around 2.2–2.8 quarters, while the fraction of firms that adjust prices in a backward looking way amounts to around one third.

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File URL: http://www.lb.lt/wp2012_no_14
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Bibliographic Info

Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 14.

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Length: 28 pages
Date of creation: 14 Dec 2012
Date of revision:
Handle: RePEc:lie:wpaper:14

Contact details of provider:
Postal: Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania
Phone: 22 40 08
Fax: 22 15 01
Email:
Web page: http://www.lbank.lt/
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Related research

Keywords: New Keynesian Phillips curve; price stickiness; real marginal cost; labour income share;

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References

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  1. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  2. Sylvia Kaufmann & Johann Scharler, 2010. "Bank-Lending Standards, the Cost Channel and Inflation Dynamics," Working Papers 164, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Campbell Leith & Jim Malley, 2003. "Estimated Open Economy New Keynesian Phillips Curves for the G7," CESifo Working Paper Series 834, CESifo Group Munich.
  4. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  5. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2010. "Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?," Economics & Management Discussion Papers em-dp2010-04, Henley Business School, Reading University.
  6. Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 200112, Rutgers University, Department of Economics.
  7. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  8. Donald W.K. Andrews, 1997. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Cowles Foundation Discussion Papers 1146R, Cowles Foundation for Research in Economics, Yale University.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  10. Kurmann, Andre, 2005. "Quantifying the uncertainty about the fit of a new Keynesian pricing model," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1119-1134, September.
  11. Ernestas Virbickas, 2010. "Wage and Price Setting Behaviour of Lithuanian Firms," Bank of Lithuania Working Paper Series 7, Bank of Lithuania.
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