The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics

Abstract

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Structural versus matching estimation: Transmission mechanisms in Armenia

“…This flatness is a well-known finding for many economies, whether the model estimated is a closed or open economy model -see e.g. Gali and Gertler (1999) for US, Mihailov, Rumler, and Scharler (2011) for Poland, Hungary, Slovakia, Latvia, Lithuania, Cyprus, Malta, Czech Republic, Slovenia, Bulgaria, where some estimates are even negative. Gali and Gertler (1999) argue that output gap is not proportional to real marginal cost, but real marginal cost better accounts for direct productivity gains on inflation, and so it should replace output gap in the Phillips curve.…”

Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?

“…They estimate the NKPC for 12 NMS (within the 2004 and 2007 enlargements), repeating the exact same empirical exercise as in Mihailov, Rumler and Scharler (2011a). Their results strongly point out the superiority of the original Galí and Monacelli (2005) model, which also enables the comparison of the relative importance of domestic factors (output gap) and foreign determinants (terms of trade) in explaining the inflation generating process.…”

“…One of the rare empirical studies of that kind is Mihailov, Rumler and Scharler (2011a), who make an effort to estimate the New Keynesian Phillips curve (NKPC) for 10 OECD countries using the Generalized Method of Moments (GMM). The authors start from the Galí and Monacelli (2005) open-economy NKPC model (comprising inflation expectations, output gap and the effective terms of trade vis-à-vis the rest of the world), and consider several alternative model specifications.…”

Globalisation Effect on Inflation in the Great Moderation Era: New Evidence from G10 Countries

“…Most of the existing empirical studies are based on extended Phillips curve models, eg Ball (2006), Borio and Filardo (2007), Pehnelt (2007), Ihrig et al (2010), Guerrieri et al (2010) and Mihailov et al (2011). One theoretical weakness of the type of Phillips curve models is the absence of explicitly specified long-run disequilibrium effect on the inflation dynamics.…”