Original title: Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries
Authors: Baxa, Jaromír ; Plašil, M. ; Vašíček, B.
Document type: Research reports
Year: 2012
Language: eng
Series: Working paper series, volume: 4/2012
Abstract: The purpose of this paper is to provide a novel look at the evolution of inflation dynamics in selected Central European (CE) countries. We use the lens of the New Keynesian Phillips Curve (NKPC) nested within a time-varying framework. Exploiting a time-varying regression model with stochastic volatility estimated using Bayesian techniques, we analyze both the closed and open-economy version of the NKPC. The results point to significant differences between the inflation processes in three CE countries. While inflation persistence has almost disappeared in the Czech Republic, it remains rather high in Hungary and Poland. In addition, the volatility of inflation shocks decreased quickly a few years after the adoption of inflation targeting in the Czech Republic and Poland, whereas it remains quite stable in Hungary even after ten years’ experience of inflation targeting. Our results thus suggest that the degree of anchoring of inflation expectations varies across CE coutries.
Keywords: Bayesian model averaging; inflation dynamics; time-varying parameter model

Institution: Institute of Information Theory and Automation AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: http://library.utia.cas.cz/separaty/2013/E/baxa-0395371.pdf
Original record: http://hdl.handle.net/11104/0223480

Permalink: http://www.nusl.cz/ntk/nusl-155893


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