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An Analysis of the Domestic Inflation Rate Dynamics and the Phillips Curve

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  • Ivo Krznar

Abstract

This paper estimates the New Keynesian Phillips Curve in order to describe the structural characteristics of the Croatian economy explaining the dynamics of the domestic inflation rate. The results of the estimation of numerous specifications of the Phillips Curve show that a hybrid version of the New Keynesian Phillips Curve provides a better explanation of the dynamics of the domestic inflation rate than other forms of the model. The main determinants of trends in the domestic inflation rate are past and expected inflation and the real marginal cost of production, which in addition to the labour share, also includes foreign imported prices. The values of the estimated parameters of the hybrid New Keynesian Curve show that the expected inflation rate plays a much more significant role in determining current prices than past inflation. In addition, the estimated parameter of the frequency of price change is low, with enterprises changing prices on average every eight quarters.

Suggested Citation

  • Ivo Krznar, 2011. "An Analysis of the Domestic Inflation Rate Dynamics and the Phillips Curve," Working Papers 31, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:31
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    References listed on IDEAS

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    Cited by:

    1. Ozana Nadoveza Jelić & Jurica Šimurina, 2020. "Evaluating sectoral effects of agricultural nitrogen pollution reduction policy in Croatia within a CGE framework," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 8(1), pages 1-35, December.
    2. Domić Alan, 2012. "An application of New Keynesian models to inflation in Croatia," Business Systems Research, Sciendo, vol. 3(2), pages 6-13, September.
    3. Andreja Pufnik & Davor Kunovac, 2013. "Pricing behaviour of Croatian Companies: results of a Firm survey and a Comparison with the eurozone," Working Papers 36, The Croatian National Bank, Croatia.

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    More about this item

    Keywords

    the New Keynesian Phillips Curve; inflation rate; open economy; real marginal cost of production; GMM estimator;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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