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Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence

  • Kenny, Geoff

    (Central Bank and Financial Services Authority of Ireland)

  • McGettigan, Donal

    (Central Bank and Financial Services Authority of Ireland)

This paper addresses the unresolved issues surrounding the determination of Irish inflation. The study tests the validity of i) a pure wage mark-up model ii) a pure small open economy model and iii) a hybrid model which fuses elements of i) and ii) over the period 1979:Q1-1995:Q3. Multivariate cointegration techniques are employed to clearly distinguish the long- and the short-run information in the data. The results highlight the relevance of the distinction between traded and non-traded prices. For traded prices, full purchasing power parity (PPP) was found to be consistent with the data. In the case of non-traded prices, the data reject strict long-run PPP. Aggregate price results occupy an intermediate position. Finally, the paper demonstrates that strong bi-directional feedback exists between prices and wages.

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File URL: http://www.centralbank.ie/publications/Documents/05RT96.pdf
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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 5/RT/96.

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Length: 43 pages
Date of creation: Dec 1996
Date of revision:
Handle: RePEc:cbi:wpaper:5/rt/96
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  1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  2. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  4. Wolfgang Franz & Robert J. Gordon, 1993. "German and American Wage and Price Dynamics: Differences and Common Thenes," NBER Working Papers 4292, National Bureau of Economic Research, Inc.
  5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  6. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics: Differences and common themes," Discussion Papers 2, University of Konstanz, Center for International Labor Economics (CILE).
  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  8. Søren Johansen & Katarina Juselius, 1992. "Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model," Discussion Papers 92-04, University of Copenhagen. Department of Economics.
  9. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  10. Callan, Tim & FitzGerald, John, 1989. "Price Determination in Ireland: Effects of Changes in Exchange Rates and Exchange Rate Regimes," Papers ME179, Economic and Social Research Institute (ESRI).
  11. Kenny, Geoff & McGettigan, Donal, 1996. "Non-Traded, Traded and Aggregate Inflation In Ireland (Part 2)," Research Technical Papers 3B/RT/96, Central Bank of Ireland.
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