P-star in times of crisis – Forecasting inflation for the euro area |
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Authors: | Robert Czudaj |
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Institution: | University of Duisburg-Essen, Campus Essen, Department of Statistics and Econometrics, 45117 Essen, Germany |
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Abstract: | In this paper we present three empirically testable versions of the common p-star model and evaluate their forecasting performance using conventional techniques. We try to answer the question if the p-star approach is preferable to achieve a reliable short-run inflation forecast and with regard to the latter we incur the need for a stable demand for money function. Our findings indicate the recurrence of the relevance of the monetary pillar of the ECB's two-pillar framework. In addition, we check for the effects of the current financial and economic crisis that started in 2007 on the forecasting performance, using two sub-sample periods, one excluding and one including the latter, and analyze the impact of the applied filter technique to compute the required equilibrium values. |
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Keywords: | JEL classification: E31 E37 E41 |
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