On “Alternative inflation rate and model development”

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As known, one of frequently appealed methods of inflation forecasting is to use Phillips curve. The starting point for the theoretical derivation of the New Phillips Curve1 (NPC) is an environment of monopolistically competitive firms that face some type of constraints on price adjustment. Nominal rigidities are generally introduced in the form of constraints on the frequency with which firms and/or workers can adjust their nominal prices and wages, respectively. An implication of such constraints is that price and wage-setting decisions become forward-looking, since agents recognize that the prices/wages they set will remain effective beyond the current period. A common specification is due to Calvo (1983), where a model is based on staggered price setting with stochastic time dependent rules. In this framework in any given time period each firm may adjust its price during that period with a fixed probability1 −θ , and, hence, with a probability θ it must keep its price unchanged.

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Program and financial report of  Economic Research Center covering activities in 2012