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

  • Borek Vasicek

    ()

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 forward-looking component, the backward-looking one 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.wdi.umich.edu/files/Publications/WorkingPapers/wp971.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp971.

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Date of creation: 01 Oct 2009
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Handle: RePEc:wdi:papers:2009-971
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