American Journal of Economics, Finance and Management
Articles Information
American Journal of Economics, Finance and Management, Vol.1, No.6, Dec. 2015, Pub. Date: Nov. 13, 2015
Change in Inflation Dynamics with the Level of Economic Development: A Comparative Study for Open Economy
Pages: 586-593 Views: 2026 Downloads: 911
Authors
[01] Khnd. Md. Mostafa Kamal, Department of Statistics, University of Dhaka, Dhaka, Bangladesh.
Abstract
This study compares the inflation behavior of India, Australia and the United Kingdom by estimating different Phillips curve models related to inflation dynamics in an open economy using quarterly data over the period of 1990 to 2013. The results obtained by applying GMM estimation show that the extended open economy version of the New Hybrid Phillips curve provides the best statistical explanation of inflation dynamics for both GDP deflator inflation and CPI inflation as inflation measure. The results also demonstrate that both the real marginal cost and exchange rate pass-through play an important role in inflation dynamics. In addition, firms of these countries follow both backward looking and forward looking behavior. However, India is less forward looking in price setting behavior compared to the UK and Australia although price rigidity is substantially higher.
Keywords
Inflation Dynamics, Open Economy, Philips Curve, GMM Estimation, Real Marginal Cost, Exchange Rate
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