Flattening of the New Keynesian Phillips curve: Evidence for an emerging,small open economy |
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Institution: | 1. Department of Economics, University of Minnesota Duluth, 1318 Kirby Dr., Duluth, MN 55812, United States;2. Department of Economics, Lehigh University, 621 Taylor Street, Rauch Business Center Room 457, Bethlehem, PA 18105, United States;1. International Business School of Chongqing Technology and Business University, China;2. Aix-Marseille Université, AMSE, CNRS & EHESS, France;3. Bank for International Settlements, Switzerland |
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Abstract: | The flattening of the Phillips curve is a vigorously investigated phenomenon in many advanced economies. Still little evidence has been presented for emerging, small open economies facing persistently low inflation. In this paper I address this issue through rigorous estimation of a substantial number of stylized, open-economy hybrid new Keynesian Phillips curves for Poland. I find robust evidence of the flattening of the Phillips curve and the rising impact of external factors for both headline and core inflation. I conclude that during excessive disinflation in Poland the flattening of the Phillips curve can be partly explained by the underutilization of labour, whereas the stronger impact of global factors on core inflation suggests strengthening indirect effects. The changes in the estimated parameters indicate that the macroeconomic cost of bringing inflation back to the desired target has increased. Further identification of the reasons behind the flattening of the Phillips curve in an emerging, small open economy should provide useful insights for monetary policy. |
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Keywords: | Hybrid Nkpc Inflation Flattening External factors Emerging Small open economy |
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