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

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  • Kenny, Geoff

    (Central Bank and Financial Services Authority of Ireland)

  • McGettigan, Donal

    (Central Bank and Financial Services Authority of Ireland)

Abstract

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.

Suggested Citation

  • Kenny, Geoff & McGettigan, Donal, 1996. "Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence," Research Technical Papers 5/RT/96, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:5/rt/96
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    References listed on IDEAS

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    1. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
    2. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
    3. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    4. 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.
    5. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
    6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    8. 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.
    9. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
    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).
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    Cited by:

    1. Bermingham, Colin, 2005. "Employment and Inflation Responses to an Exchange Rate Shock in a Calibrated Model," Research Technical Papers 2/RT/05, Central Bank of Ireland.
    2. Colin Bermingham, 2006. "Employment and Inflation Responses to an Exchange Rate Shock in a Calibrated Model," The Economic and Social Review, Economic and Social Studies, vol. 37(1), pages 27-46.
    3. Kenny, Geoff & McGettigan, Donal, 1997. "A Monetary Approach to the Analysis of Inflation in Ireland," Research Technical Papers 4/RT/97, Central Bank of Ireland.
    4. Bermingham, Colin, 2008. "Quantifying the Impact of Oil Prices on Inflation," Research Technical Papers 8/RT/08, Central Bank of Ireland.

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