Forecasting inflation: An art as well as a science!

In this study we build two forecasting models to predict inflation for the Netherlands and for the euro area. Inflation is the yearly change of the Harmonised Index of Consumer Prices (HICP). The models provide point forecasts and prediction intervals for both the components of the HICP and the aggregated HICP-index itself. Both models are small-scale linear time series models allowing for long run equilibrium relationships between HICP components and other variables, notably the hourly wage rate and the import or producer prices. The model for the Netherlands is used to generate the Dutch inflation projections over a horizon of 11-15 months ahead for the eurosystem’s Narrow Inflation Projection Exercise (NIPE). The recursive forecast errors for several forecast horizons are evaluated for all models, and are found to outperform a naive forecast and optimal AR models. Moreover, the same result holds for the Dutch NIPE projections, which have been provided quarterly since 1999. The direct and aggregation methods to predict total HICP inflation perform about equally goodmodel selection, time series models, aggregation

MOSES: Model of Swedish Economic Studies

MOSES is an aggregate econometric model for Sweden, estimated on quarterly data, and intended for short-term forecasting and policy simulations. After a presentation of qualitative model properties, the econometric methodology is summarized. The model properties, within sample simulations, and examples of dynamic simulation (model forecasts) for the period 2009q2-2012q4 are presented. We address practical issues relating to operational use and maintenance of a macro model of this type. The detailed econometric equations are reported in an appendix.

On wage formation, wage flexibility and wage coordination : A focus on the nominal wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States

This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning wage growth with labour productivity growth at the national levels. In this context, we analyse the wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US for the period 1980-2010. Apart from the contribution of productivity to wages, we take into account the contributions of prices, unemployment, replacement rates and taxes by means of an econometrically estimated non-linear wage equation resulting from a wage bargaining model. We further study the downward rigidities of wages in depth. The findings show that in past times of low productivity, price inflation and reductions in unemployment put significant upward pressure on wage growth, also in the low inflationary period of the 2000s. Greece, Ireland, Portugal and Spain are far from aligning wage growth with productivity growth. German productivity is a major German wage determinant, but surely not the only one. To steer wages, policy makers can effectively use the replacement rate

Short-term forecasting of GDP using large monthly datasets - a pseudo real-time forecast evaluation exercise

This paper evaluates different models for the short-term forecasting of real GDP growth in ten selected European countries and the euro area as a whole. Purely quarterly models are compared with models designed to exploit early releases of monthly indicators for the nowcast and forecast of quarterly GDP growth. Amongst the latter, we consider small bridge equations and forecast equations in which the bridging between monthly and quarterly data is achieved through a regression on factors extracted from large monthly datasets. The forecasting exercise is performed in a simulated real-time context, which takes account of publication lags in the individual series. In general, we find that models that exploit monthly information outperform models that use purely quarterly data and, amongst the former, factor models perform best. JEL Classification: E37, C53.Bridge models, Dynamic factor models, real-time data flow.

On wage formation: wage flexibility and wage coordination: A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States. MPRA Paper No. 31102, 29 June 2011

This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning wage growth with labour productivity growth at the national levels. In this context, we analyse the wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US for the period 1980- 2010. Apart from the contribution of productivity to wages, we take into account the contributions of prices, unemployment, replacement rates and taxes by means of an econometrically estimated non-linear wage equation resulting from a wage bargaining model. We further study the downward rigidities of wages in depth. The findings show that in past times of low productivity, price inflation and reductions in unemployment put significant upward pressure on wage growth, also in the low inflationary period of the 2000s. Greece, Ireland, Portugal and Spain are far from aligning wage growth with productivity growth. German productivity is a major German wage determinant, but surely not the only one. To steer wages, policy makers can effectively use the replacement rate

On wage formation, wage development and flexibility: a comparison between European countries and the United States. DNB Staff Report No. 108/2003

For Germany, Spain, France, the Netherlands and the US an Error Correction Model with a long-term non-linear wage equation is estimated by 3-SLS to obtain consistent estimates, accounting for endogeneity and common shocks. On the basis of the estimated parameter elasticities of wages with respect to labour productivity, value added and consumer prices, taxes, unemployment and replacement rates are computed along with the wage contributions. The results indicate that the dominant role of prices in the formation of wages in the seventies and eighties was taken over by labour productivity in the US and unemployment in Spain and – almost- in the Netherlands at the end of the nineties. Evidence for a stronger real wage flexibility of the US in comparison with the four European countries is not found

The Dutch business cycle: which indicators should we monitor?

In this study we construct a business cycle indicator for the Netherlands. The Christiano-Fitzgerald band-pass .lter is employed to isolate the cycle using the de.nition of business cycle frequencies as waves with lengths longer than 3 years and shorter than 11 years. The main advantage of band-pass .ltering is the unambiguous concept of a business cycle, to which the .ltered approximation will eventually converge as more and more observations become available. The coincident business cycle index is based on industrial production, household consumption and sta� ng employment. These three variables represent key macroeconomic developments, which are also analysed by both the CEPR and NBER dating committees. For the indicator to be useful in practice, a timely update and therefore a limited publication delay is a crucial constraint. The composite leading index consists of eleven indicators representing di�erent sectors in the economy: three .nancial series, four business and consumer surveys and four real activity variables, of which two supply- and two demand-related.business cycles; leading indicators; band-pass .lter; forecasting.