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Forecasting Spanish Inflation Using the Maximum Disaggregation Level by Sectors and Geographical Areas

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Author Info

  • Juan de Dios Tena

    (Universidad Carlos , Getafe, Spain, Università di Sassari and CRENoS, Sassari, Italy, jtena@est-econ.uc3m.es)

  • Antoni Espasa

    (Universidad Carlos , Getafe, Spain)

  • Gabriel Pino

    (Universidad de Concepción, Concepción, Chile)

Abstract

This article evaluates different strategies for forecasting Spanish inflation using information from price series for fifty-seven products and eighteen regions in Spain. We consider vector equilibrium correction (VeqCM) models that include cointegration relationships between Spanish prices and prices in the regions of Valencia, Andalusia, Madrid, Catalonia, and the Basque Country. This approach is consistent with economic intuition and is shown to be of tangible importance after suitable econometric evaluation. It is found that sectoral disaggregate models are useful for forecasting inflation in the five largest Spanish regions. Moreover, aggregate inflation forecasts in Spain can be significantly improved by aggregating projections from different sectors and geographical areas and by considering cointegration relationships between regional and national prices. However, in spite of the existence of long-run relationships between sectoral and national prices, they include deterministic components that are not consistent with the law of one price.

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File URL: http://irx.sagepub.com/content/33/2/181.abstract
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Bibliographic Info

Article provided by in its journal International Regional Science Review.

Volume (Year): 33 (2010)
Issue (Month): 2 (April)
Pages: 181-204

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Handle: RePEc:sae:inrsre:v:33:y:2010:i:2:p:181-204

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Related research

Keywords: vector equilibrium correction models; relative prices; cointegration; disaggregation;

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Cited by:
  1. Robinson Durán & Evelyn Garrido & Carolina Godoy & Juan de Dios Tena, 2012. "Predicción de la inflación en México con modelos desagregados por componente," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 27(1), pages 133-167.
  2. Gabriel Pino & Juan de Dios Tena & Antoni Espasa, 2013. "Forecasting disaggregates by sectors and regions : the case of inflation in the euro area and Spain," Statistics and Econometrics Working Papers ws130807, Universidad Carlos III, Departamento de Estadística y Econometría.
  3. H. Marques & G. Pino & JD. Tena, 2009. "Regional inflation dynamics using space-time models," Working Paper CRENoS 200915, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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