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Forecasting Inflation in the Netherlands and the Euro Area

Author

Listed:
  • A.H.J. den Reijer
  • P.J.G. Vlaar

Abstract

In this study we build two forecasting models to predict inflation for the Netherlands and for the euro area. Inflation is the yearly change of the Harmonised Index of Consumer Prices (HICP). The models provide point forecasts and prediction intervals for both the subcomponents of the HICP and the aggregated HICP-index itself. Both models are small-scale linear time series models allowing for long run equilibrium relationships between HICP subcomponents and other variables, notably the hourly wage rate and the import prices. The model for the Netherlands is used to generate Dutch inflation forecasts over an horizon of 11-15 months ahead for the Narrow Inflation Projection Exercise (NIPE). NIPE-forecasts have been generated quarterly by each country in the eurosystem since 1999.

Suggested Citation

  • A.H.J. den Reijer & P.J.G. Vlaar, 2003. "Forecasting Inflation in the Netherlands and the Euro Area," WO Research Memoranda (discontinued) 723, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:723
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    File URL: https://www.dnb.nl/binaries/wo0723_tcm46-146016.pdf
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    References listed on IDEAS

    as
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    6. Hubrich, Kirstin, 2005. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," International Journal of Forecasting, Elsevier, pages 119-136.
    7. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, pages 293-335.
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    More about this item

    Keywords

    inflation; model selection; time series models;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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