An Expectation of the Rate of Inflation According to Inflation-Unemployment Interaction in Croatia

According to the interaction of inflation and unemployment, expectation of the rate of inflation in Croatia is estimated. The interaction between inflation and unemployment is shown by model based on three first-order differential i.e. difference equations: Phillips relation, adaptive expectations equation and monetary-policy equation. The resulting equation is second order differential i.e. difference equation which describes the time path of inflation. The data of the rate of inflation and the rate of unemployment are used for parameters estimation. On the basis of the estimated time paths, the stability and convergence analysis is done for the rate of inflation.

Authors:

• Zdravka Aljinović
• Snježana Pivac
• Boško Šego

Keywords:

• Differencing
• inflation
• time path
• unemployment.

References:

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