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The Changing Dynamics Of Albanian Inflation: A Quantile Regression Approach

Author

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  • Skufi, Lorena
  • Papavangjeli, Meri

Abstract

Inflation in Albania dropped below the central bank’s target of 3% in 2012 and has fluctuated below target until end-2021. In this article we investigate the evolution of inflation risks in Albania and its main drivers. We use quantile regressions to estimate the three-month-ahead density forecast of inflation, derived from a Phillips curve for a small open economy. This methodology provides a measure to quantify the uncertainty surrounding the main estimation. The in-sample results reveal significant time variation in the shape of the distribution of inflation and considerable nonlinearities in the effects of the explanatory variables, beyond the volatility. On average the inflation distribution results skewed on the positive side. We find that inflation react more to cyclical conditions and exchange rate movements in the right tail of the distribution.

Suggested Citation

  • Skufi, Lorena & Papavangjeli, Meri, 2022. "The Changing Dynamics Of Albanian Inflation: A Quantile Regression Approach," MPRA Paper 116115, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116115
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    File URL: https://mpra.ub.uni-muenchen.de/116115/1/MPRA_paper_116115.pdf
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    References listed on IDEAS

    as
    1. Wolters Maik H. & Tillmann Peter, 2015. "The changing dynamics of US inflation persistence: a quantile regression approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(2), pages 161-182, April.
    2. Manzan, Sebastiano & Zerom, Dawit, 2013. "Are macroeconomic variables useful for forecasting the distribution of U.S. inflation?," International Journal of Forecasting, Elsevier, vol. 29(3), pages 469-478.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inflation; quantile regression; changing dynamics;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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