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Estimation of the Phillips Curve for Latvia

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  • Aleksejs Melihovs
  • Anna Zasova

Abstract

The current paper aims at estimating the formation mechanism of business inflation expectations to find out how the latter affect the inflation dynamics. To attain this goal, the authors estimated the traditional Phillips curve, new Keynesian Phillips curve and hybrid Phillips curve. The results obtained testify to a better explanatory power to describe the dynamics of Latvia's core inflation of the hybrid Phillips curve compared with the traditional and new Keynesian Phillips curves. Moreover, the outcomes of the research indicate that companies in Latvia adjust their output prices quite frequently implying that the pass-through of changes in inflation expectations to actual prices is quite prompt.

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Bibliographic Info

Paper provided by Latvijas Banka in its series Working Papers with number 2007/03.

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Date of creation: 17 Jul 2007
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Handle: RePEc:ltv:wpaper:200703

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Related research

Keywords: Phillips curve; new Keynesian Phillips curve; hybrid Phillips curve; inflation persistence;

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References

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  1. Peter Tillmann, 2009. "The New Keynesian Phillips curve in Europe: does it fit or does it fail?," Empirical Economics, Springer, vol. 37(3), pages 463-473, December.
  2. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June.
  3. Jordi Galí & Mark Gertler & J. David López-Salido, 2001. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Working Papers 44, Barcelona Graduate School of Economics.
  4. Rumler, Fabio, 2005. "Estimates of the open economy New Keynesian Phillips curve for euro area countries," Working Paper Series 0496, European Central Bank.
  5. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  6. Emmanuel Dhyne & Luis J. Álvarez & Hervé le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lünnemann & Fabio Rumler & Jouko Vilmunen, 2005. "Price setting in the euro area: Some stylized facts from Individual Consumer Price Data," Banco de Espa�a Working Papers 0528, Banco de Espa�a.
  7. Júlia Lendvai, 2005. "Hungarian Inflation Dynamics," MNB Occasional Papers 2005/46, Magyar Nemzeti Bank (the central bank of Hungary).
  8. David Hargreaves & Hannah Kite & Bernard Hodgetts, 2006. "Modelling New Zealand inflation in a Phillips curve," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, September.
  9. Maritta Paloviita & Matti Virén, 2005. "The role of expectations in the inflation process in the euro area," Macroeconomics 0508031, EconWPA.
  10. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Petra Gerlach-Kristen, 2006. "A Two-Pillar Phillips Curve for Switzerland," Working Papers 2006-09, Swiss National Bank.
  12. Maritta Paloviita, 2006. "Inflation Dynamics in the Euro Area and the Role of Expectations," Empirical Economics, Springer, vol. 31(4), pages 847-860, November.
  13. Roberts John M., 2005. "How Well Does the New Keynesian Sticky-Price Model Fit the Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-39, September.
  14. Konstantins Benkovskis & Daina Paula, 2007. "Inflation Expectations in Latvia: Consumer Survey Based Results," Working Papers 2007/01, Latvijas Banka.
  15. John B. Taylor, 1998. "Staggered Price and Wage Setting in Macroeconomics," NBER Working Papers 6754, National Bureau of Economic Research, Inc.
  16. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
  17. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 0441, European Central Bank.
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Citations

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Cited by:
  1. Aleksejs Melihovs & Anna Zasova, 2009. "The Assessment of Natural Rate of Unemployment and Capacity Utilisation in Latvia," Working Papers 2009/02, Latvijas Banka.
  2. Konstantins Benkovskis & Ludmila Fadejeva & Krista Kalnberzina, 2010. "Price Setting Behaviour in Latvia: Descriptive Evidence from CPI Microdata," Discussion Papers 2010/01, Latvijas Banka.

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