We analyse the determinants of the inflation trends in ten Southeast European (SEE) countries. Global cost-related factors and euro area inflation developments play an important role in explaining inflation dynamics in SEE countries. Changes in world food and energy prices, together with related changes in administered prices, similarly contribute to these trends. In general, we show that disinflationary spillovers from the euro area have been an important factor for fixed exchange rate regime countries, especially those with more trade exchange with countries in the euro area. Furthermore, our heterogeneity analysis shows that countries with less rigid exchange rate regimes but with relatively high exposure of trade exchange to the euro area (EA) market appear to be susceptible to inflation spillovers from the euro area. Moreover, nominal effective exchange rate plays an important role in inflation process in SEE countries, particularly in floating regime countries. In line with several recent findings about flattening of the Phillips curve in many economies across the world, cyclical unemployment does not appear to be significant in our sample. We conclude with some policy implications of our results.
Aggregate demand forecasting, also known as nowcasting when it applies to current quarter assessment, is of notable interest to policy makers. This paper concentrates on the empirical methods dealing with mixed-frequency data. In particular, it focuses on the MIDAS approach and its later extension, the Bayesian MFVAR. The two strategies are evaluated in terms of their accuracy to nowcast Macedonian GDP growth, using same monthly frequency data set. The results of this study indicate that the MIDAS regressions demonstrate comparable forecasting performance to that of MF-VAR model. Moreover, it is interesting to note that the two approaches are reciprocal, since in general, their combined forecast demonstrates clear superiority in predicting business cycle turning points. Additionally, the MF-VAR model showed higher precision in times of increased uncertainty.
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