Modelling Inflation Using Markov Switching Models: Case of Poland, 1992 – 2005

• Authors: Białowolski Piotr , Zwiernik Piotr , Żochowski Dawid
• Conference: 30th CIRET Conference, Economic Tendency Surveys and the Services Sector
• Languages of publication: EN

Abstracts

EN

We investigate inflation in Poland in the period of economic transition by examining the potential application of Markov Switching Models to model the inflation generating process in Poland. The time horizon of analysis was limited to the period between March 1992 and October 2005 defined as the process of disinflation, i.e. the process of continued decrease in inflation rates following the economic transition period in early 1990s which was accompanied by a high level of inflation. According to the Ball-Friedman hypothesis, variation of inflation during periods of high inflation can be unstable. Indeed, the results show that non-linear models significantly improve the description of inflation generating process in Poland. Apart from univariate Markov Models, we also use a model that incorporates inflation expectations measured by Future Inflation Indicator (FII). We find that the model, where lagged values of FII are included as exogenous variables is significantly better in modelling inflation than simple univariate Markov Model.

Keywords

EN

Markov Switching Models; Inflation modelling; Leading Indicators

• Publisher: Szkoła Główna Handlowa w Warszawie
• Journal: Prace i Materiały Instytutu Rozwoju Gospodarczego SGH
• Year: 2011
• Volume: 86:Business Surveys, Business Cycles. Polish Contribution to the 30th CIRET Conference
• Pages: 185-199

Dates

published

2011

Contributors

author

Białowolski Piotr

• Szkoła Główna Handlowa w Warszawie

author

Zwiernik Piotr

• Mittag-Leffler Institute, Sweden

author

Żochowski Dawid

• Szkoła Główna Handlowa w Warszawie
• European Central Bank,

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Identifiers

ISSN

0866-9503