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Inflation dynamics and the New Keynesian Phillips curve in EU-4

  • Borek Vasícek

    ()

    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

The paper seeks to shed light on inflation dynamics of four new EU member states: 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. We find the following. (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. (3) Although inflation holds a forward- looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.

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File URL: http://www.ecap.uab.es/RePEc/doc/wpdea0912.pdf
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Paper provided by Department of Applied Economics at Universitat Autonoma of Barcelona in its series Working Papers with number wpdea0912.

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Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:uab:wprdea:wpdea0912
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