Publication:
Econometric Modelling for Short-Term inflation Forecasting in the Euro Area

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2007-08
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John Wiley & Sons
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This paper examines the problem of forecasting macro-variables which are observed monthly (or quarterly) and result from geographical and sectorial aggregation. The aim is to formulate a methodology whereby all relevant information gathered in this context could provide more accurate forecasts, be frequently updated, and include a disaggregated explanation as useful information for decision-making. The appropriate treatment of the resulting disaggregated data set requires vector modelling, which captures the long-run restrictions between the different time series and the short-term correlations existing between their stationary transformations. Frequently, due to a lack of degrees of freedom, the vector model must be restricted to a block-diagonal vector model. This methodology is applied in this paper to inflation in the euro area, and shows that disaggregated models with cointegration restrictions improve accuracy in forecasting aggregate macro-variables. Copyright © 2007 John Wiley & Sons, Ltd.
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sectorial and geographical disaggregation, VEqCM, cointegration, core inflation, combination of forecasts
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Journal of Forecasting, (August 2007), v. 26, n. 5, p. 303-316