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Inflation dynamics in the Czech Republic: Estimation of the New Keynesian Phillips curve

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  • Daniela Milučká

Abstract

This paper challenges previous empirical evidence on output-inflation trade-off described in the hybrid New Keynesian Phillips curve. I estimate key coefficients of the hybrid gap-based New Keynesian Phillips curve, with both the forward- and backward-looking inflation components, in the Czech Republic for the periods 2000Q1 - 2012Q4 using Kalman filtration. My findings come to surprising conclusions that (i) output gap has a (statistically) significant impact on Czech inflation dynamics (ii) there is a reversal in behavior of Czech agents, where share of forward-looking agents predominates over backward-looking ones in the Czech Republic and (iii) Czech inflation might be significantly driven by change in import prices. In addition, all my results come statistically significant and correctly sign-oriented, which contradicts majority of existing empirical evidence on output-inflation trade-off in the Czech Republic.

Suggested Citation

  • Daniela Milučká, 2014. "Inflation dynamics in the Czech Republic: Estimation of the New Keynesian Phillips curve," International Journal of Economic Sciences, Prague University of Economics and Business, vol. 2014(2), pages 53-70.
    • Handle: RePEc:prg:jnljes:v:2014:y:2014:i:2:id:13:p:53-70
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    More about this item

    Keywords

    NA; inflation; output-inflation trade-off; inflation expectations; Kalman filtration; state space model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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