Advanced Search
MyIDEAS: Login to save this paper or follow this series

Forecasting Industry-Level CPI and PPI Inflation: Does Exchange Rate Pass-Through Matter?

Contents:

Author Info

Abstract

We examine whether industry-level forecasts of CPI and PPI inflation can be improved when we use the “exchange rate pass-through” effect, that is, when we account for the variability of the exchange rate and import prices. We build a forecasting model based on a two or three equation system involving CPI and PPI inflation where the effects of the exchange rate and import prices are explicitly taken into account. This setup also incorporates their dynamics, lagged correlations and appropriate restrictions suggested by economic theory. We compare the forecasting performance of our model with a variety of unrestricted univariate, multivariate time series models with and without standard control variables for inflation, like interest rates and unemployment. Our results suggest that improvements on the forecast accuracy can be effected when one takes into account the possible pass-through effects of exchange rates and import prices on CPI and PPI inflation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2006-10eco.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2006_10.

as in new window
Length: 49 pages
Date of creation: 23 Oct 2006
Date of revision:
Handle: RePEc:dkn:econwp:eco_2006_10

Contact details of provider:
Postal: 221 Burwood Highway, Burwood 3125
Phone: 61 3 9244 3815
Web page: http://www.deakin.edu.au/buslaw/aef/index.php

Related research

Keywords: Exchange rates; Pass-through; Inflation; Forecasting;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  2. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  3. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 1-16.
  4. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(3), pages 253-63, July.
  5. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
  6. Spanos, Aris, 1989. "Early Empirical Findings on the Consumption Function, Stylized Facts or Fiction: A Retrospective View," Oxford Economic Papers, Oxford University Press, vol. 41(1), pages 150-69, January.
  7. Clements, Michael P & Smith, Jeremy, 1999. "A Monte Carlo Study of the Forecasting Performance of Empirical SETAR Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(2), pages 123-41, March-Apr.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt5pf7g8sh, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  9. Bergin, Paul R., 2003. "Putting the 'New Open Economy Macroeconomics' to a test," Journal of International Economics, Elsevier, vol. 60(1), pages 3-34, May.
  10. Hansen Bruce E., 1997. "Inference in TAR Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(1), pages 1-16, April.
  11. Maurice Obstfeld., 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C01-121, University of California at Berkeley.
  12. Clements, Michael P. & Mizon, Grayham E., 1991. "Empirical analysis of macroeconomic time series : VAR and structural models," European Economic Review, Elsevier, vol. 35(4), pages 887-917, May.
  13. Maurice Obstfeld, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," NBER Working Papers 9118, National Bureau of Economic Research, Inc.
  14. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, 9.
  15. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
  16. Michael B. Devereux, 1997. "Real Exchange Rates and Macroeconomics: Evidence and Theory," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 773-808, November.
  17. Bhattacharya, Prasad S. & Karayalcin, Cem A. & Thomakos, Dimitrios D., 2008. "Exchange rate pass-through and relative prices: An industry-level empirical investigation," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1135-1160, November.
  18. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  19. Coakley, Jerry & Fuertes, Ana-Maria, 2001. "Border costs and real exchange rate dynamics in Europe," Journal of Policy Modeling, Elsevier, Elsevier, vol. 23(6), pages 669-676, August.
  20. Pecchenino, R. A., 1992. "Commodity prices and the CPI: Cointegration, information, and signal extraction," International Journal of Forecasting, Elsevier, vol. 7(4), pages 493-500, March.
  21. Evan F. Koenig, 1998. "What's new about the new economy? : some lessons from the current expansion," Southwest Economy, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Jul, pages 7-11.
  22. Adolfson, Malin, 2001. "Export price responses to exogenous exchange rate movements," Economics Letters, Elsevier, vol. 71(1), pages 91-96, April.
  23. Swanson, Norman R. & White, Halbert, 1997. "Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models," International Journal of Forecasting, Elsevier, vol. 13(4), pages 439-461, December.
  24. Heravi, Saeed & Osborn, Denise R. & Birchenhall, C. R., 2004. "Linear versus neural network forecasts for European industrial production series," International Journal of Forecasting, Elsevier, vol. 20(3), pages 435-446.
  25. Ki-Ho Kim, 1998. "US inflation and the dollar exchange rate: a vector error correction model," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 30(5), pages 613-619.
  26. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ondřej Šimpach & Jitka Langhamrová, 2013. "Forecasting Future Salaries in the Czech Republic Using Stochastic Modelling," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 4(2), pages 4-16.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dkn:econwp:eco_2006_10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr Xueli Tang).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.