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A Framework for Forecasting the Components of the Consumer Price

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Author Info
Janine Aron (Centre for the Study of African Economies)
John Muellbauer (Nuffield College, University of Oxford)
Coen Pretorius (South African Reserve Bank, Pretoria, South Africa)

Additional information is available for the following registered author(s):

Abstract

Inflation is a far from homogeneous phenomenon, but this fact is ignored in most work on consumer price inflation. Using a novel methodology grounded in theory, the ten sub-components of the consumer price index (excluding mortgage interest rates, or CPIX) for South Africa are modeled separately and forecast, four quarters ahead. The method combines equilibrium correction models in a rich multivariate form with the use of stochastic trends estimated by the Kalman filter to capture structural breaks and institutional change. This research is of considerable practical use for monetary policy, allowing sectoral sources of inflation to be identified. Aggregating the forecasts of the components with appropriate weights from the overall index, potentially indicates the gains to be made in forecasting the idiosyncratic sectoral behaviour of prices, over forecasting the overall consumer price index.

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Publisher Info
Paper provided by EconWPA in its series Development and Comp Systems with number 0409054.

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Length: 63 pages
Date of creation: 28 Sep 2004
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Handle: RePEc:wpa:wuwpdc:0409054

Note: Type of Document - pdf; pages: 63
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Web page: http://129.3.20.41

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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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.:
  1. Aron, Janine & Muellbauer, John, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," CEPR Discussion Papers 3595, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Weiss, Andrew A., 1991. "Multi-step estimation and forecasting in dynamic models," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 135-149. [Downloadable!] (restricted)
  3. Sims, Christopher A, 1996. "Macroeconomics and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 105-20, Winter. [Downloadable!] (restricted)
  4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  5. Tobias, Justin & Zellner, Arnold, 2004. "A Note on Aggregation, Disaggregation and Forecasting Performance," Staff General Research Papers 12024, Iowa State University, Department of Economics.
    Other versions:
  6. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept. [Downloadable!] (restricted)
  7. Aron, J. & Muellbauer, J., 2001. "Estimating Monetary Policy Rules for South Africa," Working Papers Series 2001-7, Centre for the Study of African Economies, University of Oxford.
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  8. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Development and Comp Systems 0409056, EconWPA. [Downloadable!]
    Other versions:
  9. 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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  10. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September. [Downloadable!] (restricted)
    Other versions:
  11. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
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  12. Aron, Janine & Muellbauer, John, 2000. "Personal and Corporate Saving in South Africa," CEPR Discussion Papers 2656, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. repec:cup:macdyn:v:5:y:2002:i:05:p:673-700_03 is not listed on IDEAS
  14. Antoni Espasa & Rebeca Albacete, 2004. "Econometric Modelling For Short-Term Inflation Forecasting In The Emu," Statistics and Econometrics Working Papers ws034309, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  15. Clements, Michael P. & Hendry, David F., 1996. "Multi-Step Estimation for Forecasting," The Warwick Economics Research Paper Series (TWERPS) 447, University of Warwick, Department of Economics.
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  16. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May. [Downloadable!] (restricted)
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  17. Johannes Fedderke & Chandana Kularatne & Martine Mariotti, 2007. "Mark-up Pricing in South African Industry," Journal of African Economies, Oxford University Press, vol. 16(1), pages 28-69, January.
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Development and Comp Systems 0409056, EconWPA. [Downloadable!]
    Other versions:
  2. Ian Babetskii & Fabrizio Coricelli & Roman Horváth, 2007. "Measuring and Explaining Inflation Persistence: Disaggregate Evidence on the Czech Republic," Working Papers IES 2007/22, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2007. [Downloadable!]
    Other versions:
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