A hybrid NKPC inflation model for the small Island state of Fiji

Seema Narayan; Salote Cirikisuva; Revoni Naivutu

doi:10.1016/j.eap.2023.04.023

A hybrid NKPC inflation model for the small Island state of Fiji

Seema Narayan, Salote Cirikisuva, Revoni Naivutu

Monash Business Sch DDLEE

Research output: Contribution to journal › Article › Research › peer-review

1 Citation (Scopus)

Abstract

This study models (consumer price) inflation for an open small island state of Fiji. We introduce, within a hybrid open-economy version of the New Keynesian Phillips Curve (NKPC) model, the effects of development in the stock market, and frequent sources of economic and political uncertainty on inflation. Using monthly data over the period for the period February 1996 to December 2020, we show that a model with expectations of forward- and backward-looking economic agents alone can explain 85% inflation. Other NKPC variables have explanatory power of 10% boost this to 27% relationships in the hybrid NKPC model. Overall, the study implies that inflation expectations of economic agents, if managed effectively, can avoid persistently high inflation rates.

Original language	English
Pages (from-to)	873-886
Number of pages	14
Journal	Economic Analysis and Policy
Volume	78
DOIs	https://doi.org/10.1016/j.eap.2023.04.023
Publication status	Published - Jun 2023

Keywords

Capital controls
Coup d’état
Devaluations
Inflation
Small Island state
Stock market developments

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10.1016/j.eap.2023.04.023

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title = "A hybrid NKPC inflation model for the small Island state of Fiji",

abstract = "This study models (consumer price) inflation for an open small island state of Fiji. We introduce, within a hybrid open-economy version of the New Keynesian Phillips Curve (NKPC) model, the effects of development in the stock market, and frequent sources of economic and political uncertainty on inflation. Using monthly data over the period for the period February 1996 to December 2020, we show that a model with expectations of forward- and backward-looking economic agents alone can explain 85% inflation. Other NKPC variables have explanatory power of 10% boost this to 27% relationships in the hybrid NKPC model. Overall, the study implies that inflation expectations of economic agents, if managed effectively, can avoid persistently high inflation rates.",

keywords = "Capital controls, Coup d{\textquoteright}{\'e}tat, Devaluations, Inflation, Small Island state, Stock market developments",

author = "Seema Narayan and Salote Cirikisuva and Revoni Naivutu",

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T1 - A hybrid NKPC inflation model for the small Island state of Fiji

AU - Narayan, Seema

AU - Cirikisuva, Salote

AU - Naivutu, Revoni

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N2 - This study models (consumer price) inflation for an open small island state of Fiji. We introduce, within a hybrid open-economy version of the New Keynesian Phillips Curve (NKPC) model, the effects of development in the stock market, and frequent sources of economic and political uncertainty on inflation. Using monthly data over the period for the period February 1996 to December 2020, we show that a model with expectations of forward- and backward-looking economic agents alone can explain 85% inflation. Other NKPC variables have explanatory power of 10% boost this to 27% relationships in the hybrid NKPC model. Overall, the study implies that inflation expectations of economic agents, if managed effectively, can avoid persistently high inflation rates.

AB - This study models (consumer price) inflation for an open small island state of Fiji. We introduce, within a hybrid open-economy version of the New Keynesian Phillips Curve (NKPC) model, the effects of development in the stock market, and frequent sources of economic and political uncertainty on inflation. Using monthly data over the period for the period February 1996 to December 2020, we show that a model with expectations of forward- and backward-looking economic agents alone can explain 85% inflation. Other NKPC variables have explanatory power of 10% boost this to 27% relationships in the hybrid NKPC model. Overall, the study implies that inflation expectations of economic agents, if managed effectively, can avoid persistently high inflation rates.

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KW - Coup d’état

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A hybrid NKPC inflation model for the small Island state of Fiji

Abstract

Keywords

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