Inflation dynamics analysis in selected MENA countries

Abstract

The current paper analyses the new Keynesian Phillips curve (NKPC) in the context of selected MENA countries over the 1990-2016 period. This study has used Pooled Mean Group (PMG) and Fully Modified Ordinary Least Square (FMOLS) estimation methods for the empirical analysis. For the dynamic heterogeneous panels, PMG developed by Pesaran et al. (1999) is the most suitable technique. The outcomes by FMOLS asserted that inflation and unemployment are unrelated in the long run, corroborating the long run Philips Curve theory. While, the empirical outcomes obtained by PMG indicate negative linkage between unemployment and inflation in the long run. Nevertheless, the notion of the tradeoff between the inflation and unemployment that expressed by a short-run Phillips curve is not observed in the selected MENA countries. The findings of this study corroborate the hybrid version of NKPC. Moreover, it establishes of the study suggest that the dynamic inflation can be used as a HNKPC model for understanding the inflation behavior in selected MENA countries.