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Inflation Dynamics in FYR Macedonia
Author:
Maral Shamloonull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 287
Language:
English
Publication Date:
01 Dec 2011
DOI:
https://doi.org/10.5089/9781463927219.001
ISBN:
9781463927219
ISSN:
1018-5941
Pages:
23
Keywords:
WP; Phillips curve; Inflation forecasting; VECM; DFM; understanding inflation dynamics; inflation expectation; Macedonian inflation data; monetary policy shock; inflation term; NKPC forecast; Inflation; Vector error correction models; Central bank policy rate; Vector autoregression; Output gap
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In this paper we study the dynamics of inflation in Macedonia, provide three forecasting tools and draw some policy conclusions from the quantitative results. We explore three forecasting methods for inflation. We use a Dynamic Factor Model (DFM) for short-term, monthly forecasting. We also develop two quarterly models: A Vector Error Correction Model (VECM), and a New Keynesian Phillips Curve (NKPC) for a more structural model of inflation. The NKPC shows a significant effect of output gap and inflation expectations on current inflation, confirming that the expectations channel of monetary transmission mechanism is strong. In terms of forecast-error variance, we show that all three models do very well in one-period ahead forecasting.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 287