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The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics

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Author Info

  • Alexander Mihailov

    () (School of Economics, University of Reading)

  • Fabio Rumler

    () (Economic Analysis Division, Oesterreichische Nationalbank)

  • Johann Scharler

    () (Department of Economics, University of Linz)

Abstract

This paper applies GMM estimation to assess empirically the small open-economy New Keynesian Phillips Curve derived in Galí and Monacelli (2005). We obtain a testable specification where fluctuations in the terms of trade enter explicitly, thus allowing a comparison of the relevance of domestic versus external determinants of CPI inflation dynamics. For most countries in our sample the expected relative change in the terms of trade emerges as a more relevant inflation driver than the contemporaneous domestic output gap. Overall, our results indicate some, albeit moderate, support for the tested relationship based on data from ten OECD countries typically classified as open economies.

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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Economics & Management Discussion Papers with number em-dp2008-63.

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Length: 25 pages
Date of creation: 15 Nov 2008
Date of revision:
Handle: RePEc:rdg:emxxdp:em-dp2008-63

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Keywords: New Keynesian Phillips Curve; small open economies; terms of trade fluctuations; inflation dynamics; GMM estimation;

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  2. Stephen McKnight & Alexander Mihailov, 2007. "Re-examining the Importance of Trade Openness for Aggregate Instability," Economics & Management Discussion Papers em-dp2007-52, Henley Business School, Reading University.
  3. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September.
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Citations

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Cited by:
  1. Poghosyan, K. & Boldea, O., 2011. "Structural versus Matching Estimation: Transmission Mechanisms in Armenia," Discussion Paper 2011-104, Tilburg University, Center for Economic Research.
  2. Borek Vasícek, 2009. "Inflation dynamics and the New Keynesian Phillips curve in EU-4," Working Papers wpdea0912, Department of Applied Economics at Universitat Autonoma of Barcelona.
  3. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2011. "Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 65-76, 02.
  4. Alan Domić, 2012. "An application of New Keynesian models to inflation in Croatia," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 3(2), pages 6-13.
  5. Martina Basarac & Blanka Škrabiæ & Petar Soriæ, 2011. "The Hybrid Phillips Curve: Empirical Evidence from Transition Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(4), pages 367-383, August.
  6. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, 09.
  7. Maral Shamloo, 2011. "Inflation Dynamics in FYR Macedonia," IMF Working Papers 11/287, International Monetary Fund.
  8. Qin, Duo & He, Xinhua, 2011. "Globalisation effect on inflation in the great moderation era: new evidence from G10 countries," MPRA Paper 32994, University Library of Munich, Germany.
  9. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers 1130, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  10. 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.
  11. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers halshs-00646601, HAL.

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