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Modelling Traded, Non-traded and Aggregate Inflation in a Small Open Economy: The Case of Ireland

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Author Info

  • Kenny, Geoff
  • McGettigan, Donal

Abstract

This paper addresses the unresolved issues surrounding the determination of fish inflation. The study tests the validity of (l) a pure wage mark-up model, (2) a pure small open economy model, and (3) a hybrid model which fuses elements of (1) and (2) over the period 1979:Q1-1995:Q3. Multivariate cointegration techniques are employed to clearly distinguish the long- and the short-run information in the data. The results highlight the relevance of the distinction between traded and nontraded prices. For traded prices, full purchasing power parity (PPP) was found to be consistent with the data. In the case of nontraded prices, the data reject strict long-run PPP. Aggregate price results occupy an intermediate position. Finally, the paper demonstrates that strong bidirectional feedback exists between prices and wages. Copyright 1999 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 67 (1999)
Issue (Month): 1 (January)
Pages: 60-88

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Handle: RePEc:bla:manchs:v:67:y:1999:i:1:p:60-88

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Cited by:
  1. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2006. "Purchasing Power Parity: The Irish Experience Re-visited," Trinity Economics Papers tep200615, Trinity College Dublin, Department of Economics.
  2. Bermingham, Colin & Coates, Dermot & Larkin, John & O'Brien, Derry & O'Reilly, Gerard, 2012. "Explaining Irish Inflation during the Financial Crisis," Economic Letters 13/EL/12, Central Bank of Ireland.
  3. Kenny, Geoff & Meyler, Aidan & Quinn, Terry, 1998. "Bayesian VAR Models for Forecasting Irish Inflation," MPRA Paper 11360, University Library of Munich, Germany.
  4. Eleanor Doyle, 2004. "Exchange rate pass-through in a small open economy: the Anglo-Irish case," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 443-455.
  5. Meyler, Aidan, 1999. "The non-accelerating inflation rate of unemployment (NAIRU) in a small open economy: The irish context," MPRA Paper 11363, University Library of Munich, Germany.
  6. Conall MacCoille & Daniel McCoy, 2002. "Economic Adjustment Within EMU - Ireland’s Experience," The Economic and Social Review, Economic and Social Studies, vol. 33(2), pages 179-193.
  7. Quinn, Terry & Kenny, Geoff & Meyler, Aidan, 1999. "Inflation Analysis: An Overview," Research Technical Papers 1/RT/99, Central Bank of Ireland.
  8. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Working Papers 03-17, Bank of Canada.

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