A statistical measure of core inflation

This paper examines alternative statistically-based measures of core inflation in Ireland over the period 1976-1999. A highly disaggregated (approximately 500 price series) dataset from the Irish HICP is used. The distribution of quarterly price changes is shown, in common with other international studies, to be highly kurtotic (i.e., fat-tailed) and right skewed. This would suggest there is considerable ‘statistical noise’ in the measured inflation rate, motivating the use of ‘limited influence’ estimators of central tendency over the mean measure on the grounds of statistical efficiency. It is found that even a relatively small amount of trim from both ends of the distribution of price changes results in considerable improvement in root mean square error (RMSE) relative to a benchmark measure of core inflation. This improvement is even larger when monthly data are examined.core inflation; trimmed mean; Ireland

A Statistical Measure Of Core Inflation

This paper examines alternative statistically-based measures of core inflation in Ireland over the period 1976-1999. A highly disaggregated (approximately 500 price series) dataset from the Irish HICP is used. The distribution of quarterly price changes is shown, in common with other international studies, to be highly kurtotic (i.e., fat-tailed) and right skewed. This would suggest there is considerable 'statistical noise' in the measured inflation rate, motivating the use of 'limited influence' estimators of central tendency over the mean measure on the grounds of statistical efficiency. It is found that even a relatively small amount of trim from both ends of the distribution of price changes results in considerable improvement in root mean square error (RMSE) relative to a benchmark measure of core inflation. This improvement is even larger when monthly data are examined.

Technology and Foreign Direct Investment in Ireland

Two routes by which foreign multinational enterprises (MNEs) may transfer technology - direct R&D undertaken in Ireland or through the transfer of the fruits of R&D work undertaken by the parent firm - are examined. Direct R&D undertaken by MNEs in Ireland now accounts for two-thirds of all R&D in Ireland but does not appear to differ significantly, in terms of application or orientation, from the R&D work undertaken by Irish-owned industry. Using US tax rules on the allocation of parent firm R&D expenditures between the parent firm and the host firm, technology transfer from US parent firms is estimated. It is found that incorporating technology transfer from parent firms doubles the level of R&D expenditure attributable to US firms for use in Ireland.

Results of a special questionnaire for participants in the ECB Survey of Professional Forecasters (SPF)

This document provides a summary of the aggregate results of a special questionnaire which was sent to the participants in the ECB Survey of Professional Forecasters (SPF) in autumn 2008, in the context of the ten-year anniversary of the SPF’s launch in January 1999. In summary, the results show that the SPF responses are quite timely and that the forecasts are based on heterogeneous assumptions that are predominantly generated in house. In addition, although both structural and time series models are widely used, judgement also plays a key role, in particular for the reported probability distributions. It is thus very important to consider the heterogeneity of the SPF forecasts when analysing and interpreting the results of the SPF.SPF; Survey; Forecasts; Expectations; Formation

Job Generation and Regional Industrial Policy in Ireland

Irish industrial policy explicitly encouraged job generation in certain “designated” areas via, amongst other things, preferential grant treatment, job targets and the building of advance factories in the IDA’s (Industrial Development Authority) regional industrial plans of 1973-1977 and 1978-1982. To assess the impact of these regional plans, this paper compares the employment performance of the designated and the non-designated areas in Ireland since 1972 by employing the job flow methodology pioneered by Davis and Haltiwanger (1992). We find that the convergence in aggregate industrial employment levels between designated and non-designated areas observed since 1972 has been largely driven by a higher rate of job creation without an accompanying higher rate of job destruction in the designated areas. Our econometric study attributes an annual 27 per cent of the job generation in the designated areas during the relevant period to the explicit regional industrial policy.

The non-accelerating inflation rate of unemployment (NAIRU) in a small open economy: The irish context

In Ireland the link between real disequilibrium (such as the unemployment gap) and inflation (either price or wage) is blurred by external factors, operating through traded goods price inflation. Attempts to extract information about the unobservable NAIRU from aggregate inflation measures, such as the HICP or wages inflation, are likely to be swamped by these external factors. This paper uses a measure of ‘domestically generated’ inflation (defined as the gap between the services inflation rate and the goods inflation rate), to capture domestic inflationary pressures arising from the labour market. A strong relationship is seen to exist between ‘domestically generated’ inflation and labour market tightness. The results also suggest that the NAIRU may not have varied significantly since 1979, despite the large movements in unemployment over the same period.Ireland; unemployment ;inflation ;traded goods ;NAIRU domestically generated inflation

Inflation Analysis: An Overview

The purpose of this article is to describe how inflation analysis and forecasting has been carried out in the Bank, with particular emphasis on recent research and the new challenges facing the Bank following the launch of the euro on 1 January 1999. Broadly speaking the approach adopted by the Bank over a number of years has been an eclectic one which combines judgement and a range of formal approaches. The latter include structural models which are strongly influenced by basic macroeconomic theories of the small open economy (SOE), indicator analysis, including a composite leading indicator, and time series methods such as autoregressive integrated moving average (ARIMA), vector autoregressive (VAR) and Bayesian VAR (BVAR) models. The emphasis on particular methodologies has evolved over time but in all cases judgement has played a central role.

Bayesian VAR Models for Forecasting Irish Inflation

In this paper we focus on the development of multiple time series models for forecasting Irish Inflation. The Bayesian approach to the estimation of vector autoregressive (VAR) models is employed. This allows the estimated models combine the evidence in the data with any prior information which may also be available. A large selection of inflation indicators are assessed as potential candidates for inclusion in a VAR. The results confirm the significant improvement in forecasting performance which can be obtained by the use of Bayesian techniques. In general, however, forecasts of inflation contain a high degree of uncertainty. The results are also consistent with previous research in the Central Bank of Ireland which stresses a strong role for the exchange rate and foreign prices as a determinant of Irish prices.Bayesian; BVAR; inflation forecasts; Ireland

Inflation Analysis: An Overview

The purpose of this article is to describe how inflation analysis and forecasting has been carried out in the Bank, with particular emphasis on recent research and the new challenges facing the Bank following the launch of the euro on 1 January 1999. Broadly speaking the approach adopted by the Bank over a number of years has been an eclectic one which combines judgement and a range of formal approaches. The latter include structural models which are strongly influenced by basic macroeconomic theories of the small open economy (SOE), indicator analysis, including a composite leading indicator, and time series methods such as autoregressive integrated moving average (ARIMA), vector autoregressive (VAR) and Bayesian VAR (BVAR) models. The emphasis on particular methodologies has evolved over time but in all cases judgement has played a central role.inflation analysis and forecasting; judgement; small open economy; ARIMA; BVAR

Forecasting Irish inflation using ARIMA models

This paper outlines the practical steps which need to be undertaken to use autoregressive integrated moving average (ARIMA) time series models for forecasting Irish inflation. A framework for ARIMA forecasting is drawn up. It considers two alternative approaches to the issue of identifying ARIMA models - the Box Jenkins approach and the objective penalty function methods. The emphasis is on forecast performance which suggests more focus on minimising out-of-sample forecast errors than on maximising in-sample 'goodness of fit'. Thus, the approach followed is unashamedly one of 'model mining' with the aim of optimising forecast performance. Practical issues in ARIMA time series forecasting are illustrated with reference to the harmonised index of consumer prices (HICP) and some of its major sub-components.