Modeling Inflation in Croatia
AbstractThis paper constructs a quarterly inflation model for Croatia, using the general-to-specific approach to model inflation dynamics. A two-step procedure is followed. First, we conduct a long-run sectoral analysis of inflation sources, yielding long-run determinants of inflation: markup, excess money, nominal effective exchange rate, and the output gap. Second, we estimate an equilibrium error correction model of inflation, deploying, among other variables of interest, the long-run solutions derived in the first step. The derived model of inflation suggests that inflation inertia and Croatian trading partners' inflation are most important for explaining the short-run behavior of inflation. Apart from these two variables, markup, excess money, output gap, nominal exchange rate, and broad money also contribute to inflation changes in the short run.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 45 (2009)
Issue (Month): 6 (November)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
cointegration; Croatia; general-to-specific; inflation modeling;
Other versions of this item:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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