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Working paper

Evaluating the Hybrid Phillips Curve for Russia

The aim of this research is to identify the process that guides the evolution of infl ation expectations in Russia. The signifi cance of this theoretical issue is stipulated by the fact that the characteristics of this process are the key determinants of both infl ation dynamics and the effectiveness of disinfl ation measures introduced by the Central Bank. This paper studies the degree to which infl ation expectations appear forward-looking and backward-looking. We estimate the Hybrid Phillips curve which includes proxies for both backwardand forward-looking components of infl ation expectations. Applying Generalized Method of Moments we asses, which of the two components play a predominant role in determining Russian infl ation. The estimates are based on the monthly macroeconomic statistics for the period 1999–2013. Our analysis suggests that to a large extent infl ation expectations in Russia remain backwardlooking. Hence, it is recommended to take action to enhance agent’s confi dence in the Central Bank’s policy before switching to aggressive infl ation targeting.