Short-term inflation projections model and its assessment in Latvia
Short-term inflation projections model and its assessment in Latvia
Author(s): Andrejs Bessonovs, Olegs KrasnopjorovsSubject(s): National Economy, Micro-Economics, Energy and Environmental Studies, Labor relations, Policy, planning, forecast and speculation
Published by: BICEPS/SSE Riga
Keywords: Inflation forecasting; autoregressive distributed lag model; disaggregated approach; oil prices; food commodity prices; labour costs;
Summary/Abstract: This paper builds a short-term inflation projections (STIP) model for Latvia. The model is designed to forecast highly disaggregated consumer prices using cointegrated ARDL approach of [Pesaran, M., & Shin, Y. (1998). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Econometric Society Monographs, 31, 371–413.]. We assess the forecast accuracy of STIP model using out-of-sample forecast exercise and show that our model outperforms both aggregated and disaggregated AR (1) benchmarks. Across inflation components, the forecast accuracy gains are 20–30% forecasting 3 months ahead and 15– 55% forecasting 12 months ahead.
Journal: Baltic Journal of Economics
- Issue Year: 21/2021
- Issue No: 2
- Page Range: 184-204
- Page Count: 21
- Language: English