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Estimation of the Phillips Curve for Latvia

  • Aleksejs Melihovs

    (Bank of Latvia)

  • Anna Zasova

    (Bank of Latvia)

The current paper aims at estimating the formation mechanism of business inflation expectations to find out how the latter affect the inflation dynamics. To attain this goal, the authors estimated the traditional Phillips curve, new Keynesian Phillips curve and hybrid Phillips curve. The results obtained testify to a better explanatory power to describe the dynamics of Latvia's core inflation of the hybrid Phillips curve compared with the traditional and new Keynesian Phillips curves. Moreover, the outcomes of the research indicate that companies in Latvia adjust their output prices quite frequently implying that the pass-through of changes in inflation expectations to actual prices is quite prompt.

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Paper provided by Latvijas Banka in its series Working Papers with number 2007/03.

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Date of creation: 17 Jul 2007
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Handle: RePEc:ltv:wpaper:200703
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  1. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
  2. Paloviita , Maritta & Virén , Matti, 2005. "The role of expectations in the inflation process in the euro area," Research Discussion Papers 6/2005, Bank of Finland.
  3. Fabio Rumler, 2005. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Working Papers 102, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Jordi Galí & Mark Gertler & J. David López-Salido, 2001. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Working Papers 44, Barcelona Graduate School of Economics.
  6. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
  7. Peter Tillmann, 2009. "The New Keynesian Phillips curve in Europe: does it fit or does it fail?," Empirical Economics, Springer, vol. 37(3), pages 463-473, December.
  8. Roberts John M., 2005. "How Well Does the New Keynesian Sticky-Price Model Fit the Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-39, September.
  9. David Hargreaves & Hannah Kite & Bernard Hodgetts, 2006. "Modelling New Zealand inflation in a Phillips curve," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, September.
  10. Álvarez, L. & Dias, D. & Dhyne, E. & Hoffmann, J. & Jonker, N. & Le Bihan, H. & Lünnemann, P. & Rumler, F. & Veronese, G. & Vilmunen, J., 2005. "Price Setting in the Euro Area: Some Stylized Facts from Individual Consumer Price Data," Working papers 136, Banque de France.
  11. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June.
  12. Paloviita , Maritta, 2002. "Inflation dynamics in the euro area and the role of expectations," Research Discussion Papers 20/2002, Bank of Finland.
  13. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
  14. Júlia Lendvai, 2005. "Hungarian Inflation Dynamics," MNB Occasional Papers 2005/46, Magyar Nemzeti Bank (the central bank of Hungary).
  15. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
  16. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 0441, European Central Bank.
  17. Konstantins Benkovskis & Daina Paula, 2007. "Inflation Expectations in Latvia: Consumer Survey Based Results," Working Papers 2007/01, Latvijas Banka.
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