Forecasting industry-level CPI and PPI inflation : does exchange rate pass-through matter?

Bhattacharya, Prasad S. and Thomakos, Dimitrios D. 2008, Forecasting industry-level CPI and PPI inflation : does exchange rate pass-through matter?, International journal of forecasting, vol. 24, no. 1, January-March, pp. 134-150, doi: 10.1016/j.ijforecast.2007.06.002.

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Title Forecasting industry-level CPI and PPI inflation : does exchange rate pass-through matter?
Author(s) Bhattacharya, Prasad S.ORCID iD for Bhattacharya, Prasad S.
Thomakos, Dimitrios D.
Journal name International journal of forecasting
Volume number 24
Issue number 1
Season January-March
Start page 134
End page 150
Total pages 17
Publisher Elsevier B.V.
Place of publication Amsterdam, Netherlands
Publication date 2008
ISSN 0169-2070
Keyword(s) causality
direction of change
econometric model
exchange rates
model reduction
VAR model
VARMA model
Summary We show that incorporating the effects of exchange rate pass-through into a model can help in obtaining superior forecasts of domestic, industry-level inflation. Our analysis is based on a multivariate system of domestic inflation, import prices and exchange rates that incorporates restrictions from economic theory. These are restrictions on the transmission channels of the exchange rate pass-through to domestic prices, and are presented as testable hypotheses that lead to model reduction. We provide the results of various tests, including causality and prior restrictions, which support the underlying economic arguments and the model we use. The forecasting results for our model suggest that it has a superior performance overall, jointly producing more accurate forecasts of domestic inflation.
Language eng
DOI 10.1016/j.ijforecast.2007.06.002
Field of Research 140303 Economic Models and Forecasting
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2007, International Institute of Forecasters
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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