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Inflation dynamics and the cost channel in emerging markets

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  • Malikane, Christopher

Abstract

We investigate inflation dynamics and the presence of the cost channel in ten emerging markets since the 1990's from the new Keynesian and triangle Phillips curve perspectives. A negative sign on the output gap is a common finding in new Keynesian specifications. This problem may be addressed by taking into account the endogeneity of the nominal interest rate in the instrument set of GMM estimations. We confirm substantial and significant backward-looking behavior in the inflation process of emerging markets, but its size is not robust to specification in some economies. In almost all the triangle model estimations, except for Hungary, the output gap exhibits the correct sign. Except for Mexico, there is no evidence of the cost channel in emerging market economies. The cost channel is not robust to the endogeneity of the nominal interest rate and to the specification of the Phillips curve.

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  • Malikane, Christopher, 2012. "Inflation dynamics and the cost channel in emerging markets," MPRA Paper 42688, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42688
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    2. Schäfer, Dorothea & Stephan, Andreas & Trung Hoang, Khanh, 2017. "The Cost Channel Effect of Monetary Transmission: How Effective is the ECB's Low Interest Rate Policy for Increasing Inflation?," Ratio Working Papers 287, The Ratio Institute.
    3. Keyra Primus, 2013. "'Excess Reserves, Monetary Policy and Financial Volatility," Centre for Growth and Business Cycle Research Discussion Paper Series 183, Economics, The University of Manchester.
    4. Igor Ézio Maciel Silva & Nelson Leitão Paes & Jocildo Fernandes Bezerra, 2016. "Evidences Of Incomplete Interest Rate Pass-Through, Directed Credit And Cost Channel Of Monetary Policy In Brazil," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 036, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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    More about this item

    Keywords

    Cost channel; inflation dynamics; Phillips curve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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