INFLATION DYNAMICS & REAL ECONOMIC ACTIVITY: EXAMINATION OF THE COST-BASED HYBRID NEW KEYNESIAN PHILLIPS CURVE FOR THE CZECH REPUBLIC

JAKUB SZABÓ – PETER JANČOVIČ

https://doi.org/10.53465/EDAMBA.2021.9788022549301.465-475

 

Abstract: The New Keynesian Phillips Curve (NKPC) became a staple in the New Keynesian economics, assuming an existence of a short-term trade-off between inflation and real economic activity, either in a form of labor unit costs or output gap. Extending the cost-based NKPC with hybrid, backward-looking price setting to the Czech Republic, we aim to examine the impact of unit labor costs, inflation expectations, import prices and real effective exchange rate on the development of inflation between 2000M1 and 2020M12. Dealing with nonstationary and cointegrated time series, we compare results employing an Error Correction Model (ECM) and an Autoregressive Distributed Lag (ARDL) model with the variables integrated in order I(1). Our data result suggest that the labor unit costs, and the inflation expectations might have an impact on the evolution of inflation based on the ECM and ARDL in differences for the Czech Republic between 2000M1 and 2020M12, although the results are too uncertain to be unambiguous.

Keywords: expected inflation, real marginal costs, New Keynesian Phillips Curve, the Czech Republic

JEL classification: C32, E31, F42

Fulltext: PDF

Online publication date: 12 May 2022

 

To cite this article (APA style):

Szabó, J. & Jančovič, P. (2022). Inflation Dynamics & Real Economic Activity: Examination of the Cost-Based Hybrid New Keynesian Phillips Curve for the Czech Republic. Proceedings from the EDAMBA 2021 conference, 465 – 475. https://doi.org/10.53465/EDAMBA.2021.9788022549301.465-475