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Modelling inflation in the euro area

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  • Jansen, Eilev S.

Abstract

The paper presents an incomplete competition model (ICM), where inflation is determined jointly with unit labour cost growth. The ICM is estimated on data for the Euro area and evaluated against existing models, i.e. the implicit inflation equation of the Area Wide model (AWM) - cf. Fagan, Henry and Mestre (2001) - and estimated versions of the (single equation) P* model and a hybrid New Keynesian Phillips curve. The evidence from these comparisons does not invite decisive conclusions. There is, however, some support in favour of the (reduced form) AWM inflation equation. It is the only model that encompasses a general unrestricted model and it forecast encompasses the competitors when tested on 20 quarters of one step ahead forecasts. JEL Classification: C22, C32, C52, C53, E31

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Paper provided by European Central Bank in its series Working Paper Series with number 0322.

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Date of creation: Mar 2004
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Handle: RePEc:ecb:ecbwps:20040322

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Keywords: Area Wide model; forecast encompassing; incomplete competition model; inflation; model evaluation; New Keynesian Phillips curve; P*-model;

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Citations

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Cited by:
  1. Bowdler, Christopher & Jansen, Eilev S., 2004. "Testing for a time-varying price-cost markup in the Euro area inflation process," University of California at San Diego, Economics Working Paper Series qt4s75w541, Department of Economics, UC San Diego.
  2. Ascari, Guido & Rankin, Neil, 2007. "Perpetual youth and endogenous labor supply: A problem and a possible solution," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 708-723, December.
  3. Jansen, Eilev S., 2004. "Modelling inflation in the euro area," Working Paper Series 0322, European Central Bank.
  4. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Money growth, output gaps and inflation at low and high frequency: Spectral estimates for Switzerland," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 411-435, February.
  5. D.M. Nachane & Amlendu Kumar Dubey, 2008. "The vanishing role of money in the macroeconomy: An Empirical investigation based on spectral and wavelet analysis," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2008-022, Indira Gandhi Institute of Development Research, Mumbai, India.
  6. D. M. Nachane & Amlendu Kumar Dubey, 2008. "The Vanishing Role of Money in the Macroeconomy - An Empirical Investigation Based On Spectral and Wavelet Analysis," Macroeconomics Working Papers 22369, East Asian Bureau of Economic Research.
  7. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.
  8. Nachane, D.M. & Dubey, Amlendu Kumar, 2011. "The vanishing role of money in the macro-economy: An empirical investigation for India," Economic Modelling, Elsevier, vol. 28(3), pages 859-869, May.
  9. Heather Anderson & Mardi Dungey & Denise Osborn & Farshid Vahid, 2007. "Constructing Historical Euro Area Data," Money Macro and Finance (MMF) Research Group Conference 2006 99, Money Macro and Finance Research Group.
  10. Antonin Rusek, 2008. "Inflation Dynamics in New EU Member States: The Czech Case," International Advances in Economic Research, Springer, vol. 14(2), pages 191-204, May.
  11. Elsa Vaz, 2008. "Sectoral Leadership in International Competitiveness," CEFAGE-UE Working Papers 2008_07, University of Evora, CEFAGE-UE (Portugal).
  12. Bowdler, Christopher & Jansen, Eilev S., 2004. "A markup model of inflation for the euro area," Working Paper Series 0306, European Central Bank.

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