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P-Star in Times of Crisis – Forecasting Inflation for the Euro Area

Posted: 13 Mar 2012  

Robert Czudaj

University of Duisburg-Essen

Date Written: March 12, 2012

Abstract

In this paper we present three empirically testable versions of the common p-star model and evaluate their forecasting performance using conventional techniques. We try to answer the question if the p-star approach is preferable to achieve a reliable short-run inflation forecast and with regard to the latter we incur the need for a stable demand for money function. Our findings indicate the recurrence of the relevance of the monetary pillar of the ECB’s two-pillar framework. In addition, we check for the effects of the current financial and economic crisis that started in 2007 on the forecasting performance, using two sub-sample periods, one excluding and one including the latter, and analyze the impact of the applied filter technique to compute the required equilibrium values.

Keywords: Euro area, Forecast, Inflation, Money demand, P-star

JEL Classification: E31, E37, E41

Suggested Citation

Czudaj, Robert, P-Star in Times of Crisis – Forecasting Inflation for the Euro Area (March 12, 2012). Economic Systems, Vol. 35, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=2020319

Robert Czudaj (Contact Author)

University of Duisburg-Essen ( email )

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Duisburg, 47048
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HOME PAGE: http://www.oek.wiwi.uni-due.de/en/team/robert-czudaj/

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