Essays in Empirical Macroeconomics

Abstract

This thesis consists of three chapters in empirical macroeconomics. In particular it treats important issues related to monetary policy. The focus is on inflation dynamics and all three studies involve some approach of forecasting.<br /> The first chapter deals with estimation problems of a monetary policy rule and inflation dynamics. In light of potential weak instrument problems, the study suggests to use factors as a summary of the relevant information typically available at central banks. These factors are used to instrument the public's unobserved inflation expectations prevalent at each point in time. The second chapter more explicitly focuses on forecasting inflation and in contrast to the first chapter it discusses out-of-sample forecasting with a large set of Phillips curve models for Euro area inflation. A particular emphasis is on forecast combination techniques and various approaches in detrending inflation prior to estimation. While also touched upon in the first two chapters, the final chapter explicitly deals with survey inflation expectations, i.e., it analyses how professional forecasters form their expectations as reported in a well-known survey. We examine how much weight these forecasters attach to backward- and how much to forward-looking information and suggest a Phillips curve model to explain their expectations formation process.