Forecasting the Estonian rate of inflation using factor models
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 th...
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2017-07-01
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| Series: | Baltic Journal of Economics |
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| Online Access: | http://dx.doi.org/10.1080/1406099X.2017.1371976 |
| _version_ | 1811270294716809216 |
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| author | Nicolas Reigl |
| author_facet | Nicolas Reigl |
| author_sort | Nicolas Reigl |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-04-12T21:59:09Z |
| format | Article |
| id | doaj.art-58b5947cf09a4828899268d1cd7daf3f |
| institution | Directory Open Access Journal |
| issn | 1406-099X 2334-4385 |
| language | English |
| last_indexed | 2024-04-12T21:59:09Z |
| publishDate | 2017-07-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Baltic Journal of Economics |
| spelling | doaj.art-58b5947cf09a4828899268d1cd7daf3f2022-12-22T03:15:12ZengTaylor & Francis GroupBaltic Journal of Economics1406-099X2334-43852017-07-0117215218910.1080/1406099X.2017.13719761371976Forecasting the Estonian rate of inflation using factor modelsNicolas Reigl0Tallinn University of TechnologyThe 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.http://dx.doi.org/10.1080/1406099X.2017.1371976Factor modelsfactor-augmented vector autoregressive modelsfactor analysisprincipal componentsinflation forecastingEstonia |
| spellingShingle | Nicolas Reigl Forecasting the Estonian rate of inflation using factor models Baltic Journal of Economics Factor models factor-augmented vector autoregressive models factor analysis principal components inflation forecasting Estonia |
| title | Forecasting the Estonian rate of inflation using factor models |
| title_full | Forecasting the Estonian rate of inflation using factor models |
| title_fullStr | Forecasting the Estonian rate of inflation using factor models |
| title_full_unstemmed | Forecasting the Estonian rate of inflation using factor models |
| title_short | Forecasting the Estonian rate of inflation using factor models |
| title_sort | forecasting the estonian rate of inflation using factor models |
| topic | Factor models factor-augmented vector autoregressive models factor analysis principal components inflation forecasting Estonia |
| url | http://dx.doi.org/10.1080/1406099X.2017.1371976 |
| work_keys_str_mv | AT nicolasreigl forecastingtheestonianrateofinflationusingfactormodels |