Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence*

Geoff Kenny and Donal McGettigan
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Donal McGettigan: Central Bank and Financial Services Authority of Ireland

No 5/RT/96, Research Technical Papers from Central Bank of Ireland

Abstract: This paper addresses the unresolved issues surrounding the determination of Irish inflation. The study tests the validity of i) a pure wage mark-up model ii) a pure small open economy model and iii) a hybrid model which fuses elements of i) and ii) over the period 1979:Q1-1995:Q3. Multivariate cointegration techniques are employed to clearly distinguish the long- and the short-run information in the data. The results highlight the relevance of the distinction between traded and non-traded prices. For traded prices, full purchasing power parity (PPP) was found to be consistent with the data. In the case of non-traded prices, the data reject strict long-run PPP. Aggregate price results occupy an intermediate position. Finally, the paper demonstrates that strong bi-directional feedback exists between prices and wages.

Pages: 43 pages
Date: 1996-12
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Citations: View citations in EconPapers (4)

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