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The Hybrid Phillips Curve: Empirical Evidence from Transition Economies

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Abstract

In this paper we estimate the hybrid New Keynesian Phillips curve for nine transition economies and examine its ability to explain inflation dynamics. Special emphasis has been made on obtaining a measure of expected inflation directly from consumer surveys via the probability method, as opposed to most similar studies, which employ various proxy or instrumental variables for expected inflation. Unlike similar studies that employ the Generalized Method of Moments in evaluating the hybrid Phillips curve, here we use a dynamic fixed effects (DFE) model, as suggested by recent advances in the estimation of nonstationary heterogeneous dynamic panel models. This empirical investigation leads to the conclusion that there does exist a cointegration relation between inflation, expected inflation, and the output gap (as a proxy for real marginal cost). The long-run coefficients for both independent variables are positive and statistically significant. Moreover, based on the error correction model evaluated, one arrives at a conclusion that the error correction term is statistically significant and of appropriate sign, pointing to a 15 percent quarterly imbalance correction. Furthermore, our results are robust to a variety of dynamic panel estimation procedures.

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  • 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.
  • Handle: RePEc:fau:fauart:v:61:y:2011:i:4:p:367-383
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    Cited by:

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    2. Albulene Kastrati & Geoff Pugh & Valentin Toci, 2017. "Output Gap In Transition Economies Using Unobserved Component Method: The Case Of Czech Republic, Estonia And Kosovo," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 26(2), pages 477-500, december.
    3. Kavtaradze, Lasha, 2014. "Inflation Dynamics in Georgia," MPRA Paper 59966, University Library of Munich, Germany.
    4. Temitope Leshoro & Umakrishnan Kollamparambil, 2016. "Inflation Or Output Targeting? Monetary Policy Appropriateness In South Africa," PSL Quarterly Review, Economia civile, vol. 69(276), pages 77-104.
    5. Kristina Matuzeviciute & Mindaugas Butkus & Akvile Karaliute, 2017. "Do Technological Innovations Affect Unemployment? Some Empirical Evidence from European Countries," Economies, MDPI, vol. 5(4), pages 1-19, December.
    6. Duncan O. Hongo & Fanglin Li & Max William Ssali, 2019. "Trade-Off Phillips Curve, Inflation and Economic Implication: The Kenyan Case," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(4), pages 60-73, April.
    7. Vít Pošta, 2015. "Semi-structural estimates of time-varying NAIRU based on the new Keynesian Phillips curve: evidence from Eastern European economies," Empirical Economics, Springer, vol. 49(4), pages 1217-1243, December.
    8. Franz Xaver Zobl & Martin Ertl, 2021. "The Condemned Live Longer – New Evidence of the New Keynesian Phillips Curve in Central and Eastern Europe," Open Economies Review, Springer, vol. 32(4), pages 671-699, September.

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    More about this item

    Keywords

    hybrid New Keynesian Phillips curve; inflation expectations; dynamic heterogeneous panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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