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Forecasting inflation and tracking monetary policy in the euro area: does national information help?

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  • Riccardo Cristadoro
  • Giuseppe Saporito
  • Fabrizio Venditti

    ()

Abstract

The ECB target is set in terms of the year on year growth rate of the euro area Harmonized Index of Consumer Prices. Nonetheless, a good deal of attention is given to national data by market analysts when they try to anticipate monetary policy moves. In this paper we use the Generalized Dynamic Factor Model to develop a set of core inflation indicators that, combining national data with area wide information, allow us to answer two related questions. The first is whether country specific data actually bear any relevance for the future path of area wide price growth, over and above that already contained in area wide data. The second is whether to track ECB monetary policy decisions it is useful to take into account national information and not only area wide statistics. Within our empirical framework we find that once area wide information is properly taken into account the contribution of national idiosyncratic developments is negligible. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 44 (2013)
Issue (Month): 3 (June)
Pages: 1065-1086

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Handle: RePEc:spr:empeco:v:44:y:2013:i:3:p:1065-1086

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Keywords: Forecasting; Dynamic factor model; Inflation; Taylor rule; Monetary policy; C25; E37; E52;

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References

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Citations

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Cited by:
  1. Guido Bulligan & Massimiliano Marcellino & Fabrizio Venditti, 2012. "Forecasting economic activity with higher frequency targeted predictors," Temi di discussione (Economic working papers) 847, Bank of Italy, Economic Research and International Relations Area.
  2. Guido Bulligan & Roberto Golinelli & Giuseppe Parigi, 2010. "Forecasting industrial production: the role of information and methods," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 227-235 Bank for International Settlements.
  3. Guido Bulligan & Roberto Golinelli & Giuseppe Parigi, 2010. "Forecasting monthly industrial production in real-time: from single equations to factor-based models," Empirical Economics, Springer, vol. 39(2), pages 303-336, October.

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