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Forecasting the Estonian rate of inflation using factor models.
- Source :
- Baltic Journal of Economics; Nov2017, Vol. 17 Issue 2, p152-189, 38p
- Publication Year :
- 2017
-
Abstract
- The paper presents forecasts of headline and core inflation in Estonia with factor models in a recursive pseudo out-of-sample framework. The factors are constructed with a principal component analysis and are then incorporated into vector autoregressive (VAR) forecasting models. The analyses show that certain factor-augmented VAR models improve upon a simple univariate autoregressive model but the forecasting gains are small and not systematic. Models with a small number of factors extracted from a large dataset are best suited for forecasting headline inflation. The results also show that models with a larger number of factors extracted from a small dataset outperform the benchmark model in the forecast of Estonian headline and, especially, core inflation. [ABSTRACT FROM PUBLISHER]
Details
- Language :
- English
- ISSN :
- 1406099X
- Volume :
- 17
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Baltic Journal of Economics
- Publication Type :
- Academic Journal
- Accession number :
- 125778249
- Full Text :
- https://doi.org/10.1080/1406099X.2017.1371976