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Short-Run Dynamics of Inflation: Estimating a Hybrid New-Keynesian Phillips Curve for Argentina (1993-2007)

Author Info

Listed author(s):
  • Laura D’Amato

    ()

    (Central Bank of Argentina)

  • María Lorena Garegnani

    ()

    (Central Bank of Argentina)

Abstract

We estimate a “Hybrid New-Keynesian Phillips Curve” for Argentina between 1993 and 2007. We extend the model to a small open economy, considering separately the influence of nominal devaluation and foreign inflation on domestic prices. For the whole sample, we find that forward and backward-looking components are relevant although the backward-looking term weights more in determining inflation dynamics. We test for parameter stability and find a break-point in 2002 along with the regime change. In line with recent literature on trend inflation, when trend inflation increases, the influence of the output gap weakens and the curve becomes more forward-looking.

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File URL: http://www.bcra.gov.ar/pdfs/investigaciones/55_DAmato.pdf
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Article provided by Central Bank of Argentina, Economic Research Department in its journal Ensayos Económicos.

Volume (Year): 1 (2009)
Issue (Month): 55 (July - September)
Pages: 33-56

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Handle: RePEc:bcr:ensayo:v:1:y:2009:i:55:p:33-56
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Keywords: Argentina; inflation dynamics; Phillips Curve; small open economy;

Find related papers by JEL classification:

  • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  2. Guido Ascari & Tiziano Ropele, 2009. "Trend Inflation, Taylor Principle, and Indeterminacy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1557-1584, December.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
  4. Michael T. Kiley, 2007. "Is Moderate-to-High Inflation Inherently Unstable?," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 173-201, June.
  5. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  6. repec:sae:niesru:v:164:y::i:1:p:100-109 is not listed on IDEAS
  7. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 631-653.
  8. Michael Dotsey, 2002. "Pitfalls in interpreting tests of backward-looking pricing in New Keynesian models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 37-50.
  9. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850, April.
  10. Guerrieri, Luca, 2006. "The Inflation Persistence of Staggered Contracts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 483-494, March.
  11. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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