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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
Date of revision:
Handle: RePEc:ltv:wpaper:200703
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  1. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 0441, European Central Bank.
  2. 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.
  3. 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.
  4. 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.
  5. Petra Gerlach-Kristen, 2006. "A Two-Pillar Phillips Curve for Switzerland," Working Papers 2006-09, Swiss National Bank.
  6. Konstantins Benkovskis & Daina Paula, 2007. "Inflation Expectations in Latvia: Consumer Survey Based Results," Working Papers 2007/01, Latvijas Banka.
  7. 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.
  8. Jordi Gali & Mark Gertler & David Lopez-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," NBER Working Papers 11788, National Bureau of Economic Research, Inc.
  9. 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.
  10. Fabio Rumler, 2007. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Open Economies Review, Springer, vol. 18(4), pages 427-451, September.
  11. Sophocles N. Brissimis & Nicholas S. Magginas, 2006. "Inflation Forecasts and the New Keynesian Phillips Curve," Working Papers 38, Bank of Greece.
  12. 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.
  13. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  14. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
  15. Paloviita, Maritta, 2002. "Inflation dynamics in the euro area and the role of expectations," Research Discussion Papers 20/2002, Bank of Finland.
  16. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
  17. Júlia Lendvai, 2005. "Hungarian Inflation Dynamics," MNB Occasional Papers 2005/46, Magyar Nemzeti Bank (Central Bank of Hungary).
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