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Inflation Dynamics in Romania - a New Keynesian Perspective

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  • Nicoleta Ciurila
  • Bogdan Murarasu

Abstract

The objective of this paper is to identify the main factors which drive inflation in Romania: inflation persistence, inflation expectations and real economy variables. We estimate a reduced form hybrid New Keynesian Phillips Curve in order to determine the degree of inertia and the impact of forward looking expectations. As a proxy for real economic activity, we alternatively use the output gap, the unemployment gap, the unit labour cost, the capacity utilization rate and the economic sentiment indicator. We focus on the role of the monetary policy in controlling the various sources of inflation.

Suggested Citation

  • Nicoleta Ciurila & Bogdan Murarasu, 2008. "Inflation Dynamics in Romania - a New Keynesian Perspective," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 31-38.
  • Handle: RePEc:ers:journl:v:xi:y:2008:i:4:p:31-38
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    References listed on IDEAS

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    1. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    2. Arratibel, Olga & Rodriguez-Palenzuela, Diego & Thimann, Christian, 2002. "Inflation dynamics and dual inflation in accession countries: a 'New Keynesian' perspective," Working Paper Series 0132, European Central Bank.
    3. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    4. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
    5. 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.
    6. Jordi Galí & J David López-Salido, 2001. "A New Phillips curve for Spain," BIS Papers chapters,in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 174-203 Bank for International Settlements.
    7. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    9. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    10. Campbell Leith & Jim Malley, 2007. "Estimated Open Economy New Keynesian Phillips Curves for the G7," Open Economies Review, Springer, vol. 18(4), pages 405-426, September.
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    Cited by:

    1. Morar Triandafil, Cristina & Brezeanu, Petre & Huidumac, Catalin & Morar Triandafil, Adrian, 2011. "The Drivers of the CEE Exchange Rate Volatility - Empirical Perspective in the context of the Recent Financial Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 212-229, March.
    2. repec:ntu:ntcmss:vol5-iss1-17-36 is not listed on IDEAS

    More about this item

    Keywords

    New Keynesian Phillips Curve; Inflation dynamics; GMM estimation;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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