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Inflation Convergence and the New Keynesian, Phillips Curve in the Czech Republic

  • Katarína Danišková


    (Comenius University Bratislava)

  • Jarko Fidrmuc


    (Osteuropa-Institut, Regensburg (Institut for East European Studies))

The New Keynesian Phillips Curve has become an important part of modern monetary policy models. It describes the relationship between inflation and real marginal cost, which is derived from micro-founded models with rational expectations, sticky prices, and forward and backward looking behaviour. This answers the previous critique of the Phillips Curve. We estimate several specifications of the New Keynesian Phillips Curve for the Czech Republic between 1996 and 2009. We show that the GMM suffers under the problem of weak instruments leading to biased estimates. In turn, the FIML is robust and yields significant estimates of structural parameters implying a strong forward looking behaviour.

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Paper provided by Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) in its series Working Papers with number 292.

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Length: 24
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:ost:wpaper:292
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