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Structural changes to quarterly projection model

Author

Listed:
  • Ana Živkovic, Jelena Momcilovic, Zorica Roljic Mihanovic, Danilo Cerovic
  • Ana Živkovic

    (National Bank of Serbia)

  • Jelena Momcilovic

    (National Bank of Serbia)

  • Zorica Roljic Mihanovic

    (National Bank of Serbia)

  • Danilo Cerovic

    (National Bank of Serbia)

Abstract

In this paper we present structural changes to the macroeconomic model used in the National Bank of Serbia for medium-term inflation forecasting, made in the period since inflation targeting was first introduced as the monetary policy regime. We describe in detail three changes related to inflation determinants. The first change has to do with the aggregation of overall inflation components, with the goal of linking them more directly to the underlying factors driving inflation. The second change is an extension of the model to explicitly include the effect of private sector wages on inflation. The third change is the inclusion of the effect of fiscal policy on aggregate demand, which has increased in significance in the period since the breakout of the COVID-19 pandemic in 2020. From the perspective of a reduced forecast error, the changes are justified by performing historical simulations.

Suggested Citation

  • Ana Živkovic, Jelena Momcilovic, Zorica Roljic Mihanovic, Danilo Cerovic & Ana Živkovic & Jelena Momcilovic & Zorica Roljic Mihanovic & Danilo Cerovic, 2022. "Structural changes to quarterly projection model," Working Papers Bulletin 13, National Bank of Serbia.
    • Handle: RePEc:nsb:bilten:13
    as

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    References listed on IDEAS

    as
    1. Karel Musil & Mikhail Pranovich & Mr. Jan Vlcek, 2018. "Structural Quarterly Projection Model for Belarus," IMF Working Papers 2018/254, International Monetary Fund.
    2. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inflation; model; prices; labour market; wages; fiscal impulse;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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