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Inflation Dynamics and the New Keynesian Phillips Curve in Four Central European Countries

  • Borek Vašícek

This paper seeks to shed light on the inflation dynamics of four new central European EU members: the Czech Republic, Hungary, Poland, and Slovakia. To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied, with the following results: (1) the claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile, (2) inflation seems to be driven by external factors, and (3) although inflation holds a forward-looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be adaptive, rather than rational price setting of local firms.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 47 (2011)
Issue (Month): 5 (September)
Pages: 71-100

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Handle: RePEc:mes:emfitr:v:47:y:2011:i:5:p:71-100
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