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Author: Thomas McGregor Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 46
Book Description
We develop a bottom-up model of inflation in the euro area based on a set of augmented Phillips curves for seven subcomponents of core inflation and auxiliary regressions for non-core items. We use the model’s disaggregated structure to explore which factors drove the deterioration in forecasting performance during the pandemic period and use these insights to improve on the ability to forecast inflation. In the baseline, the projection for core inflation is centered above 3 percent at end-2023, while headline inflation is expected to drop quite sharply over 2023, with energy base effects pulling inflation down from the currently very elevated levels to below 3 percent by 2023q4. The confidence intervals around these projections are wide given elevated uncertainty. We argue that the bottom-up approach offers a useful complement to the forecasters toolbox – even in the current uncertain environment - by improving forecast accuracy, shedding additional light on the drivers of inflation and providing a framework in which to apply ex post judgement in a structured way.
Author: Thomas McGregor Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 46
Book Description
We develop a bottom-up model of inflation in the euro area based on a set of augmented Phillips curves for seven subcomponents of core inflation and auxiliary regressions for non-core items. We use the model’s disaggregated structure to explore which factors drove the deterioration in forecasting performance during the pandemic period and use these insights to improve on the ability to forecast inflation. In the baseline, the projection for core inflation is centered above 3 percent at end-2023, while headline inflation is expected to drop quite sharply over 2023, with energy base effects pulling inflation down from the currently very elevated levels to below 3 percent by 2023q4. The confidence intervals around these projections are wide given elevated uncertainty. We argue that the bottom-up approach offers a useful complement to the forecasters toolbox – even in the current uncertain environment - by improving forecast accuracy, shedding additional light on the drivers of inflation and providing a framework in which to apply ex post judgement in a structured way.
Author: Laura Moretti Publisher: ISBN: 9789289935579 Category : Languages : en Pages :
Book Description
We perform a robust estimation of the Phillips curve in the euro area using a battery of 630 theory-driven models. We extend the existing literature by adding model specifications, taking into account the uncertainty in the measurement of variables and testing for potential non-linearities and structural changes. Using Dynamic Model Averaging, we identify the most important determinants of inflation over the sample. We then forecast core inflation 12 quarters ahead and present its probability distribution. We compare the distribution of forecasts performed in recent years, and we assess, in a probabilistic manner, the convergence towards a sustainable path of inflation.
Author: Ilmo Pyyhtiä Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
This paper deals with the question of whether the euro area Phillips curve is nonlinear. There has recently been a great deal of discussion and studies concerning the same question in the US context. The data set includes most of the euro area countries, namely Austria, Germany, Finland, France, Italy, the Netherlands and Spain. Estimation is made both with pooled data and with country-specific models. The results give a clear indication of nonlinearity of the Phillips curve in many euro countries. The curve is asymmetric in the sense that, with a positive output gap (actual output is greater than potential output), its impact on inflation is positive, but, with a negative output gap, the deflationary impact is very small and not significant as a rule. The Phillips curve has been especially asymmetric in Germany, Finland, Italy, the Netherlands and Spain. An important result of the study is the strong negative influence of inflation uncertainty on GDP in the euro countries during the estimation period, 1976-1997. This effect was very strong in pooled data but also at country level. This result is new in the sense that a Lucas-type supply function and especially nonlinear versions of it have not been estimated very often. Another interesting result is that Phillips curves can be estimated with good success using OECD Secretariat forecast data for inflation expectations. A very important result for monetary policy are the large differences between countries as regards the slope and shape of the Phillips curve. The policy implication of nonlinearity is clear. The costs of unduly expansive monetary policy could be high in the euro area in the medium term. Nonlinearity also means that inflation pressure in the euro area is dependent not only on the average demand situation but also on how economic activity is distributed across the region.
Author: Andrea Beccarini Publisher: CEPS ISBN: 9290798130 Category : Inflation (Finance) Languages : en Pages : 32
Book Description
With inflation increasing all over the world, central banks have to consider with some care how quickly to re-establish price stability. A key issue in this context is the short-run cost in terms of foregone output and higher unemployment. The aim of this paper is to determine the 'sacrifice ratio' for the Euro Area and for the United States. The main findings are: the cost of reducing inflation is in most cases higher in the US than in the EA. For example, reducing (headline) inflation by 1% point requires a decline of output of 1.4% in the EU, but 2.3% for the US. Considering core inflation, the sacrifice ratio in terms of output is somewhat higher for the Euro Area (around 4) compared to 3.2 for the US. However, the sacrifice ratios in terms of unemployment are always much larger for the US. Reducing headline inflation by 1% requires an increase in unemployment of little more than 1% in the EA, compared to 8% in the US.However, there is also a long-run 'hysterisis' cost that is specific to the Euro Area since the reaction of unemployment to output depends on the state of the economy. During downturns this relationship worsens. This implies that a recession engineered to combat inflation will have an additional cost in terms of lower unemployment later, even after the recovery of the economy.
Author: Mr.Yasser Abdih Publisher: International Monetary Fund ISBN: 1484372565 Category : Business & Economics Languages : en Pages : 25
Book Description
Despite closing output gaps and tightening labor markets, inflation has remained low in the euro area. Based on an augmented Phillips Curve framework, we find that this phenomenon—sometimes attributed to low global inflation—has been primarily caused by a remarkable persistence of inflation, keeping it low despite the reduction in slack. This feature is shown to be specific to the euro area (in comparison with the United States). Monetary policy needs to stay accommodative to help guide inflation back to target.
Author: Dennis Bonam Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
Recently, the unemployment gap in the euro area has fallen markedly. However, wages increased less than predicted by traditional Phillips curves. Using Bayesian methods, we estimate the wage Phillips curve with time-varying parameters. We consider alternative measures for labor market slack, namely the unemployment gap and the European Commission's labor shortage indicator. Using the latter indicator, we find a steepening of the wage Phillips curve in Italy and France, and a stable Phillips curve in the Netherlands after the crisis. In Germany (Spain), both measures suggest a recent flattening (steepening) of the wage Phillips curve.
Author: Jordi Galí Publisher: ISBN: Category : Economics Languages : en Pages : 54
Book Description
We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
Author: Thomas McGregor
Author: Thomas McGregor
Author: Laura Moretti
Author: Ilmo Pyyhtiä
Author: Andrea Beccarini
Author: Mr.Yasser Abdih
Author: Marco Buchmann
Author: Maritta Paloviita
Author: Dennis Bonam
Author: Jordi Galí
Author: