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Forecasting Trade Deflators In Ireland

Papa, Javier and et., al. (2016): Forecasting Trade Deflators In Ireland. Published in: Ireland's Department of Finance - Technical Notes Series 12/2016 (December 2016)

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This technical note provides an overview and rationale for recently developed forecast models for Irish export and import prices (trade deflators) in both Merchandise Goods and Services. These forecasts constitute a significant component of the GDP Deflator forecast used in the Department of Finance’s overall macroeconomic forecast, produced for the annual Budget and the Stability Programme Updates. New forecasting models for export and import prices were required due to recent revisions (July 2016) to the Central Statistics Office’s (CSO) National Income and Expenditure (NIE) data series. Based on the revised NIE quarterly data for the past 16 years (2000:Q1 – 2016:Q2), new short term forecasts of the trade deflators for Ireland over the period 2016:Q3- 2017:Q4 are presented at the end of this note. The main results show that trade deflator forecasts presented here should be able to predict future export and import prices with a fair degree of accuracy (i.e. within one standard error bands). However, the forecasts quality is conditional on the absence of major turning points in the series, in particular for the Services trade deflators.

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