The Hybrid Phillips Curve: Empirical Evidence from Transition Economies

Martina Basarac (), Blanka Škrabiæ () and Petar Soriæ ()
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Martina Basarac: Department for Quantitative Methods, Faculty of Economics, University of Split, http://www.unist.hr/Default.aspx?alias=www.unist.hr/eng
Blanka Škrabiæ: Department for Quantitative Methods, Faculty of Economics, University of Split, http://www.unist.hr/Default.aspx?alias=www.unist.hr/eng
Petar Soriæ: Department for Quantitative Methods, Faculty of Economics, University of Split, http://www.unist.hr/Default.aspx?alias=www.unist.hr/eng
Authors registered in the RePEc Author Service: Blanka Skrabic Peric and Petar Sorić

Czech Journal of Economics and Finance (Finance a uver), 2011, vol. 61, issue 4, 367-383

Abstract: In this paper we estimate the hybrid New Keynesian Phillips curve for nine transition economies and examine its ability to explain inflation dynamics. Special emphasis has been made on obtaining a measure of expected inflation directly from consumer surveys via the probability method, as opposed to most similar studies, which employ various proxy or instrumental variables for expected inflation. Unlike similar studies that employ the Generalized Method of Moments in evaluating the hybrid Phillips curve, here we use a dynamic fixed effects (DFE) model, as suggested by recent advances in the estimation of nonstationary heterogeneous dynamic panel models. This empirical investigation leads to the conclusion that there does exist a cointegration relation between inflation, expected inflation, and the output gap (as a proxy for real marginal cost). The long-run coefficients for both independent variables are positive and statistically significant. Moreover, based on the error correction model evaluated, one arrives at a conclusion that the error correction term is statistically significant and of appropriate sign, pointing to a 15 percent quarterly imbalance correction. Furthermore, our results are robust to a variety of dynamic panel estimation procedures.

Keywords: hybrid New Keynesian Phillips curve; inflation expectations; dynamic heterogeneous panel data (search for similar items in EconPapers)
JEL-codes: C23 D12 E31 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:61:y:2011:i:4:p:367-383

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