Forecasting inflation and tracking monetary policy in the euro area: does national information help?

Riccardo Cristadoro, Fabrizio Venditti and Giuseppe Saporito ()
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Giuseppe Saporito: Bank of Italy, Cagliari

No 677, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The ECB objective of price stability is given a quantitative content as a year-on-year growth rate in the euro area HICP close but below 2% over the medium term. While this objective is referred to area-wide price developments, in anticipating monetary policy moves, market analysts pay considerable attention to national data. In this paper we use the Generalized Dynamic Factor Model to derive a set of core inflation indicators that, combining national with area-wide data, allow us to answer two related questions: whether country-specific data are actually relevant to the future path of area-wide inflation once the information contained in area-wide data has been exploited, and whether it is useful, in order to track ECB monetary policy decisions, to factor in national and not only area-wide statistics. In both cases, our findings suggest that, when area-wide information is properly taken into account, there is little to be gained by considering national idiosyncratic developments.

Keywords: Forecast; Dynamic factor model; inflation; monetary policy (search for similar items in EconPapers)
JEL-codes: C25 E37 E52 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Forecasting inflation and tracking monetary policy in the euro area: does national information help? (2013)
Working Paper: Forecasting inflation and tracking monetary policy in the euro area: does national information help? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_677_08

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