Inflation Dynamics in FYR Macedonia

December 1, 2011

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Format: Chicago

Maral Shamloo. Inflation Dynamics in FYR Macedonia, (USA: International Monetary Fund, 2011) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper we study the dynamics of inflation in Macedonia, provide three forecasting tools and draw some policy conclusions from the quantitative results. We explore three forecasting methods for inflation. We use a Dynamic Factor Model (DFM) for short-term, monthly forecasting. We also develop two quarterly models: A Vector Error Correction Model (VECM), and a New Keynesian Phillips Curve (NKPC) for a more structural model of inflation. The NKPC shows a significant effect of output gap and inflation expectations on current inflation, confirming that the expectations channel of monetary transmission mechanism is strong. In terms of forecast-error variance, we show that all three models do very well in one-period ahead forecasting.

Subject: Central bank policy rate, Econometric analysis, Financial services, Inflation, Output gap, Prices, Production, Vector autoregression, Vector error correction models

Keywords: Central bank policy rate, DFM, Inflation, Inflation expectation, Inflation forecasting, Inflation term, Macedonian inflation data, Monetary policy shock, NKPC forecast, Output gap, Phillips curve, Understanding inflation dynamics, VECM, Vector autoregression, Vector error correction models, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/287
Stock No:

WPIEA2011287
ISBN:

9781463927219
ISSN:

1018-5941

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