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Forecasting Spanish inflation using information from different sectors and geographical areas

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Abstract

This paper evaluates different strategies to forecast Spanish inflation using information of price series for 57 products and 18 regions in Spain. We consider vector equilibrium correction (VeqC) models that include cointegration relationships between Spanish prices and prices in the regions of Valencia, Andalusia, Madrid, Catalonia and the Basque Country. This approach is consistent with economic intuition and is shown to be of tangible importance after suitable econometric evaluation. It is found that inflation forecasts can always be improved by aggregating projections from differente sectors and geographical areas. Moreover, cointegration relationships between regional and national prices must be considered in order to obtain a significantly better inflation forecast.

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  • Pino, Gabriel, 2008. "Forecasting Spanish inflation using information from different sectors and geographical areas," DES - Working Papers. Statistics and Econometrics. WS ws080101, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:ws080101
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    Cited by:

    1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.

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    More about this item

    Keywords

    Vector equilibrium correction models;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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