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P-star in times of crisis - Forecasting inflation for the euro area

  • Czudaj, Robert

In this paper we present three empirically testable versions of the common p-star model and evaluate their forecasting performance using conventional techniques. We try to answer the question if the p-star approach is preferable to achieve a reliable short-run inflation forecast and with regard to the latter we incur the need for a stable demand for money function. Our findings indicate the recurrence of the relevance of the monetary pillar of the ECB's two-pillar framework. In addition, we check for the effects of the current financial and economic crisis that started in 2007 on the forecasting performance, using two sub-sample periods, one excluding and one including the latter, and analyze the impact of the applied filter technique to compute the required equilibrium values.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 35 (2011)
Issue (Month): 3 (September)
Pages: 390-407

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Handle: RePEc:eee:ecosys:v:35:y:2011:i:3:p:390-407
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