An explanatory and forecast model for price developments in Germany and the euro area

Since the global economic and financial crisis of 2008/2009, central banks in the world's major industrialized nations have been flooding their banks with virtually limitless liquidity. The European Central bank has actually stepped up its liquidity measures considerably again, spurred on by the debt crisis.

What this policy will mean for price stability is hotly disputed. Some believe that it is a
source of considerable inflationary potential, while others are more concerned that the
monetary policy moves will prove ineffective, their worries centering more on deflation
risks.

A lot rests on what the real forces driving inflation are in the current situation.We have
used an econometric approach in an attempt to explain price developments over the
past twelve years. If the explanatory quality of this approach proves sufficient, it can also
be used as a forecast model.

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