WORKING PAPER SERIES
                            NO. 482 / MAY 2005
   FORECASTING 
   MACROECONOMIC 
   VARIABLES FOR THE NEW
   MEMBER STATES OF THE
   EUROPEAN UNION
   by Anindya Banerjee,
   Massimiliano Marcellino 
   and Igor Masten
                                           WORKING PAPER SERIES
                                                         NO. 482 / MAY 2005
                                                                FORECASTING 
                                                            MACROECONOMIC 
                                                    VARIABLES FOR THE NEW 
                                                     MEMBER STATES OF THE 
                                                          EUROPEAN UNION1
                                                                by Anindya Banerjee 2,
                                                              Massimiliano Marcellino 3
                                                                   and Igor Masten 4
                             In 2005 all ECB 
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                         1   In preparing this paper we have benefited from comments by Ignazio Angeloni,Gabriel Fagan,Vitor Gaspar and participants at a research
                           seminar at the European Central Bank (ECB).The authors are also grateful to members of the European Forecasting Network (EFN) for
                             their helpful suggestions.We thank the EFN and the Research Council of the European University Institute for partially funding this
                            research.The first-named author also wishes to thank Vitor Gaspar, Juan Luis Vega and Ignazio Angeloni for their invitation to the ECB 
                             during July and August 2004,where substantial work on this paper was undertaken within the framework of the Research Visitors
                                           Programme.Their hospitality and support are much appreciated.The usual disclaimer applies.
                              2   Corresponding author:Department of Economics,European University Institute,Via della Piazzuola,43,50133 Firenze,Italy;
                                                                  e-mail: anindya.banerjee@iue.it
                               3   IEP-Bocconi University, IGIER, and CEPR,Via Salasco, 5, 20136, Milano, Italy; e-mail: massimiliano.marcellino@uni-bocconi.it
                              4   Faculty of Economics, University of Ljubljana, Kardeljeva ploscad 17, 1000, Ljubljana, Slovenia; e-mail: igor.masten@ef.uni-lj.si
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                                                                                   CONTENTS
                                                                                   Abstract                                                   4
                                                                                   N    on-  technical summary                                5
                                                                                   1 Introduction                                             7
                                                                                   2 Methodology                                              8
                                                                                      2.1 Forecasting models                                  9
                                                                                      2.2 Forecast comparison                               12
                                                                                   3 The data                                               12
                                                                                   4 Forecasting results                                    14
                                                                                      4.1 The Czech Republic                                14
                                                                                      4.2 Hungary                                           15
                                                                                      4.3 Poland                                            16
                                                                                      4.4 Slovakia                                          17
                                                                                      4.5 Slovenia                                          17
                                                                                      4.6 The role of euro area information                 18
                                                                                      4.7 I(2) prices, wages and money                      20
                                                                                   5 Conclusions                                            20
                                                                                   References                                               22
                                                                                   Appendix A: Tables                                       24
                                                                                   Appendix B: Figures                                      35
                                                                                   Appendix C: The data sets                                38
                                                                                   European Central Bank working paper series               44
                                                                                                                                                 ECB
                                                                                                                                 Working Paper Series No. 482
                                                                                                                                             May 2005   3