Divergent macro-economic developments within a currency area can lead to undesired distortions. That is why in the Eurozone much attention was drawn to the homogeneity of the currency area. However, at the beginning the Eurozone seemed to be too heterogeneous for a common currency. So many hopes...

We propose a new method for medium-term forecasting using exogenous information. We first show how a shifting-mean autoregressive model can be used to describe characteristic features in inflation series. This implies that we decompose the inflation process into a slowly moving nonstationary...