IDEAS home Printed from https://ideas.repec.org/p/eea/boewps/wp2000-01.html
   My bibliography  Save this paper

Estonian Inflation Model

Author

Listed:
  • Urmas Sepp
  • Andres Vesilind

    ()

  • Ulo Kaasik

    ()

Abstract

The objective of model-building was an inflation model suitable for prognosis as well as for simulation. The model serves two purposes. First of all, it is a tool for analysing inflation. Secondly, it is part of the model of Estonian economy, which completes the adjustment loop of the macromodel. The theoretical background of the inflation model derives from four basic features of Estonian economy. Namely, Estonia is: a small and open economy, a transitional economy, economy under currency board arrangement and a market economy. When estimating the model, inflation was decomposed into a) underlying inflation which is a long-run process and b) inflation deviations from the equilibrium which are caused by the short-run impact of inflation factors. The underlying inflation, which reflects the convergence, is determined as a trend. The latter was specified as a time function, ARMA process, moving average and HP filter, whereas the best result was obtained with time function. According to modelling output the short run dynamics of the inflation are determined by three main factors - demand pressure reflected by the GDP gap, exchange rate of the US dollar (which is proxy for foreign prices), and administrative action for correcting regulated prices. The adequacy of the model has been tested on the basis of ex post and ex ante prognosis. The model provided acceptable results in the simulation of endogenous and exogenous shocks

Suggested Citation

  • Urmas Sepp & Andres Vesilind & Ulo Kaasik, 2000. "Estonian Inflation Model," Bank of Estonia Working Papers 2000-1, Bank of Estonia, revised 10 Oct 2000.
  • Handle: RePEc:eea:boewps:wp2000-01
    as

    Download full text from publisher

    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/et/Toimetised/2000/index.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Urmas Sepp & Raoul Lättemäe & Martti Randveer, 2002. "The History and Sustainability of the CBA in Estonia," Macroeconomics 0212002, EconWPA.
    2. Raoul Lättemäe, 2001. "Monetary transmission mechanism in Estonia - some theorethical considerations and stylized aspects," Bank of Estonia Working Papers 2001-4, Bank of Estonia, revised 13 Oct 2001.
    3. Aurelijus Dabušinskas, 2003. "Exchange rate pass-through to Estonian prices," Bank of Estonia Working Papers 2003-10, Bank of Estonia, revised 10 Dec 2003.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2000-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peeter Luikmel). General contact details of provider: http://edirc.repec.org/data/epgovee.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.