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Inflation forecasting in the new EU Member States

Author Info

Listed author(s):
  • Arratibel, Olga
  • Leiner-Killinger, Nadine
  • Kamps, Christophe

Abstract

To the best of our knowledge, our paper is the first systematic study of the predictive power of monetary aggregates for future inflation for the cross section of New EU Member States. This paper provides stylized facts on monetary versus non-monetary (economic and fiscal) determinants of inflation in these countries as well as formal econometric evidence on the forecast performance of a large set of monetary and nonmonetary indicators. The forecast evaluation results suggest that, as has been found for other countries before, it is difficult to find models that significantly outperform a simple benchmark, especially at short forecast horizons. Nevertheless, monetary indicators are found to contain useful information for predicting inflation at longer (3-year) horizons. JEL Classification: C53, E31, E37, E51, E52, E62, P24

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Paper provided by European Central Bank in its series Working Paper Series with number 1015.

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Date of creation: Feb 2009
Handle: RePEc:ecb:ecbwps:20091015
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Keywords: fiscal policy; inflation forecasting; information content of money; Leading indicators; monetary policy; new EU member states;

Find related papers by JEL classification:

  • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
  • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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  1. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters,in: Asset Prices and Monetary Policy, pages 291-333 National Bureau of Economic Research, Inc.
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  18. Joaquim Vieira Ferreira Levy & Alessandro Calza & Dieter Gerdesmeier, 2001. "Euro Area Money Demand; Measuring the Opportunity Costs Appropriately," IMF Working Papers 01/179, International Monetary Fund.
  19. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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Cited by:

  1. Öğünç, Fethi & Akdoğan, Kurmaş & Başer, Selen & Chadwick, Meltem Gülenay & Ertuğ, Dilara & Hülagü, Timur & Kösem, Sevim & Özmen, Mustafa Utku & Tekatlı, Necati, 2013. "Short-term inflation forecasting models for Turkey and a forecast combination analysis," Economic Modelling, Elsevier, vol. 33(C), pages 312-325.
  2. International Monetary Fund, 2014. "Republic of Lithuania; Selected Issues," IMF Staff Country Reports 14/114, International Monetary Fund.
  3. Liew, Freddy, 2012. "Forecasting inflation in Asian economies," MPRA Paper 36781, University Library of Munich, Germany.

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