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Inflation forecasting in the new EU member states

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Author Info
Olga Arratibel () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Christophe Kamps () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Nadine Leiner-Killinger () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)

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Abstract

To the best of our knowledge, our paper is the first systematic study of the predictive power of monetary aggregates for future inflation for the cross section of New EU Member States. This paper provides stylized facts on monetary versus non-monetary (economic and fiscal) determinants of inflation in these countries as well as formal econometric evidence on the forecast performance of a large set of monetary and non-monetary indicators. The forecast evaluation results suggest that, as has been found for other countries before, it is difficult to find models that significantly outperform a simple benchmark, especially at short forecast horizons. Nevertheless, monetary indicators are found to contain useful information for predicting inflation at longer (3-year) horizons. JEL Classification: C53, E31, E37, E51, E52, E62, P24

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 1015.

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Length: 41 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:ecb:ecbwps:20091015

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Related research
Keywords: Inflation forecasting; leading indicators; monetary policy; information content of money; fiscal policy; New EU Member States;

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  2. Hubrich, Kirstin, 2005. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," International Journal of Forecasting, Elsevier, vol. 21(1), pages 119-136. [Downloadable!] (restricted)
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  3. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
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  4. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, 02. [Downloadable!] (restricted)
  5. Sergio Nicoletti Altimari, 2001. "Does money lead inflation in the euro area?," Working Paper Series 063, European Central Bank. [Downloadable!]
  6. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August. [Downloadable!] (restricted)
  7. Stefan Gerlach, 2004. "The two pillars of the European Central Bank," Economic Policy, CEPR, CES, MSH, vol. 19(40), pages 389-439, October. [Downloadable!] (restricted)
  8. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
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  9. Alessandro Calza & Dieter Gerdesmeier & Joaquim Vieira Ferreira Levy, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 01/179, International Monetary Fund.
  10. Kai Carstensen, 2007. "Is core money growth a good and stable inflation predictor in the euro area?," Kiel Working Papers 1318, Kiel Institute for the World Economy. [Downloadable!]
  11. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Interpreting euro area inflation at high and low frequencies," European Economic Review, Elsevier, vol. 52(6), pages 964-986, August. [Downloadable!] (restricted)
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  12. Katrin Assenmacher-Wesche & Stefan Gerlach, 2007. "Money at Low Frequencies," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 534-542, 04-05. [Downloadable!] (restricted)
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