Quarterly inflation rate target and forecasts in Romania

Abstract

oai:ojs2.jems.sciview.net:article/1In this study, we proposed some inflation rate predictions based on econometric models that performed better than the targets of the National Bank of Romania. Few econometric models (multiple regressions model and a vector-autoregression) were used to predict the quarterly inflation rate in Romania during 2000:Q1-2016:Q4. The GDP growth has a negative impact on inflation rate in Romania, an increase in logarithm of GDP with one percentage point determining a decrease in inflation logarithm with less than 0.1 units according to both proposed models. However, an increase in inflation rate in the previous period determined an increase in this variable in the current period. The inverse of unemployment rate is positively correlated with the index of prices. The causal relationship between inflation rate and unemployment rate is reciprocal. In the first period the index of prices evolution is explained only by changes in this variable. The inflation rate volatility is due mainly to the evolution of this indicator, the influence decreasing insignificantly in time, not descending under 88%. More than 99% of the variation in unemployment rate is explained by the own volatility for all lags. The annual forecasts based on these models performed better than the targets on the horizon 2015-2016

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