Estimated New Keynesian Phillips Curve in Lithuania

Virbickas, Ernestas

doi:10.3846/bm.2012.034

Cited by 2 publications

(2 citation statements)

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“…These authors also find out some extent of price rigidity in observed countries, which have an influence on the inflation rate dynamics. Similar findings are documented in Virbickas (2012) for Lithuania. Furuoka (2016) analyse the validity of the New Keynesian Phillips curve in the Baltic States.…”

Section: Review Of the Empirical Literaturesupporting

confidence: 87%

“…The presence of some kind of wage rigidity can explain the price inflation dynamics and the asymmetry in the economic activity-inflation nexus. Finally, this study could fill the gap in the literature dealing with the issue of the domestic drivers' impact on the inflation rate dynamics in the Baltic States, which was mainly based on the assumption that the impact is symmetric (for instance, Dabušinskas & Kulikov, 2007;Masso & Staehr, 2005;Meļihovs & Zasova, 2009;Reigl, 2017;Vanags & Hansen, 2008;Virbickas, 2012).…”

Section: Introductionmentioning

confidence: 99%

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Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach

Mihajlović

Marjanović

2020

Baltic Journal of Economics

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This study investigates asymmetry in the impact of domestic inflation drivers in the Baltic States, focusing on the output gap and unemployment gap. We aim to reveal how positive and negative changes in these economic activity indicators affect the inflation rate by employing a nonlinear autoregressive distributed lag approach (NARDL) and the Phillips curve. Empirical results demonstrate the long-run asymmetry as inflation in Estonia and Lithuania responds more significantly to positive changes in the output gap, whereas negative changes in the unemployment gap exhibit a stronger long-run impact on inflation in all three countries. These findings mainly suggest some extent of downward price rigidity in the Baltic economies, indicating a nonlinear Phillips curve and relatively large costs of disinflation policy directed to aggregate demand reduction. Further analysis reveals that increasing downward nominal wage flexibility could reduce these asymmetries in Estonia and, to a lesser extent, in Latvia and Lithuania.

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Section: Review Of the Empirical Literaturesupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach

Mihajlović

Marjanović

2020

Baltic Journal of Economics

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The Estimation of Traditional Phillips Curve

Bartkus

2023

ECO

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This article presents theoretical foundations for original Phillips curve formulation and an empirical investigation, where the structure of the theoretical model serves as a template for the creation of the empirical model.For a couple of decades the majority of empirical Phillips curve type assessments are performed using the New Keynesian Phillips curve with Calvo pricing as a benchmark for this type of relationship. New Keynesian model has solid microeconomic foundations, has proved itself very well in the analysis of price stickiness; nevertheless, it is not without limitations. The main insufficiency of New Keynesian model is that it has no direct links to the conditions and the changes that occur in the labour market. The need to encompass the conditions in labour market comes from the coincides that occur time to time when the growth rates of aggregate production may diminish or even become negative, but the level of employment may stay the same, what in turn means that the pressure on inflation won’t drop, despite the fact that production level has not increased as expected or even has decreased. This article aims to fill this gap and presents alternative theoretical foundations for Phillips curve, that lead to the model with direct links to the labour market. Theoretical foundations are necessary as they may help to minimize the risks to miss some important details or to omit important factors. Although the empirical analysis in this paper is based on Lithuanian data, it is not country specific.

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Estimated New Keynesian Phillips Curve in Lithuania

Cited by 2 publications

References 9 publications

Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach

Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach

The Estimation of Traditional Phillips Curve

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