723 - Forecasting Inflation in the Netherlands and the Euro Area

Wetenschappelijke publicatie
Date 1 February 2003

In this study we build two forecasting models to predict inflation for the Netherlands and for the euro area. Inflation is the yearly change of the Harmonised Index of Consumer Prices (HICP). The models provide point forecasts and prediction intervals for both the subcomponents of the HICP and the aggregated HICP-index itself. Both models are small-scale linear time series models allowing for long run equilibrium relationships between HICP subcomponents and other variables, notably the hourly wage rate and the import prices. The model for the Netherlands is used to generate Dutch inflation forecasts over an horizon of 11-15 months ahead for the Narrow Inflation Projection Exercise (NIPE). NIPE-forecasts have been generated quarterly by each country in the eurosystem since 1999. Key words: inflation, model selection, time series models JEL codes: C32, C43, C52, C53