An International Perspective on the Recent Behavior of Inflation

Contessi, Silvio; Pace, Pierangelo De; Li, Li Lily

doi:10.20955/r.96.267-294

Cited by 3 publications

(2 citation statements)

References 28 publications

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“…However, the limited room for monetary policy action amid very low inflation and short-term interest rates implies that fiscal policy has to shoulder more of the responsibility for macroeconomic stabilization (Feldstein 2002). Such proactive fiscal policy may be difficult when government debt is high, because, all else equal, the real burden of debt is likely to remain persistently higher in a lowflation environment than in an inflationary environment where nominal incomes are rising (Contessi, Li, and De Pace 2014).…”

Section: What Policy Challenges Does Excessively Low Inflation Pose?mentioning

confidence: 99%

Inflation: Concepts, Evolution, and Correlates

Ha¹,

Иванова²,

Ohnsorge³

et al. 2019

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Section: What Policy Challenges Does Excessively Low Inflation Pose?mentioning

confidence: 99%

Inflation: Concepts, Evolution, and Correlates

Ha¹,

Иванова²,

Ohnsorge³

et al. 2019

View full text Add to dashboard Cite

show abstract

“…Likewise, Gregoriou et al (2011) and Lopez and Papell (2012) study inflation differentials in the Eurozone and find persistent inflation differentials across member countries. With countries (and currency unions) aiming at low inflation the possible occurrence of deflation has become an intensely debated topic (Contessi et al, 2014;Sau, 2015, andScharnagl andStapf, 2015)[5].…”

Section: Introductionmentioning

confidence: 99%

Heuristics versus econometrics as a basis for forecasting international inflation differentials

Rötheli

2019

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Purpose This study aims to address the issue of prediction of inflation differences for an economy that considers either fixing its exchange rate or joining a currency union. In this setting, individual countries have limited control over their inflation, and anticipating the possible course of domestic inflation relative to inflation abroad becomes an important input in policy-making. In this context, the author compares simple forecast heuristics and econometric modeling. Design/methodology/approach The study compares two basically different approaches. The first approach of forecasting consists of simple heuristics. Various heuristics are considered that differ with respect to the economic reasoning that goes into quantifying the forecast rules. The simplest such forecasting heuristic suggests that the average over all available observations of inflation differentials should be taken as a predictor for the future. Bringing more economic insight to bear suggests a further heuristic according to which historical inflation differentials should be adjusted for changes in the nominal exchange rate. A further variant of this approach suggests that a forecast should exclusively rely on data from earlier times under a pegged exchange rate. A fundamentally different approach to prediction builds on dynamic econometric models estimated by using all available historical data independent of the currency regime. Findings The author studies three small member countries of the Eurozone, i.e. Finland, Luxembourg and Portugal. For the evaluation of the various forecasting strategies, he performs out-of-sample predictions over a horizon of five years. The comparison of the four different forecasting strategies documents that the variant of the forecast heuristic that draws on data from earlier experiences under fixed exchange rates performs better than the forecast based on the estimated econometric model. Practical implications The findings of this study provide helpful guidelines for countries considering either joining a currency union or fixing their exchange rate. The author shows that a simple forecasting heuristic gives sound advice for assessing the likely course of inflation. Originality/value This study describes how economic theory can guide the selection of historical data for assessing likely future developments. The analysis shows that using a simple heuristic based on historical analogy can lead to better forecasts than the analytically more sophisticated approach of econometric modeling.

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Does History Help Predict International Inflation Differentials?

Rötheli

2016

SSRN Journal

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An International Perspective on the Recent Behavior of Inflation

Cited by 3 publications

References 28 publications

Inflation: Concepts, Evolution, and Correlates

Inflation: Concepts, Evolution, and Correlates

Heuristics versus econometrics as a basis for forecasting international inflation differentials

Does History Help Predict International Inflation Differentials?

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