Real‐Time Forecasts of Inflation: The Role of Financial Variables
AbstractWe present a mixed-frequency model for daily forecasts of euro area inflation. The model combines a monthly index of core inflation with daily data from financial markets; estimates are carried out with the MIDAS regression approach. The forecasting ability of the model in real-time is compared with that of standard VARs and of daily quotes of economic derivatives on euro area inflation. We find that the inclusion of daily variables helps to reduce forecast errors with respect to models that consider only monthly variables. The mixed-frequency model also displays superior predictive performance with respect to forecasts solely based on economic derivatives.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 32 (2013)
Issue (Month): 1 (01)
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
Other versions of this item:
- Libero Monteforte & Gianluca Moretti, . "Real time forecasts of inflation: the role of financial variables," Working Papers wp2011-6, Department of the Treasury, Ministry of the Economy and of Finance.
- Libero Monteforte & Gianluca Moretti, 2010. "Real time forecasts of inflation: the role of financial variables," Temi di discussione (Economic working papers) 767, Bank of Italy, Economic Research and International Relations Area.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- G19 - Financial Economics - - General Financial Markets - - - Other
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- Eric Ghysels & Andros Kourtellos & Elena Andreou, 2012. "Should macroeconomic forecasters use daily financial data and how?," 2012 Meeting Papers 1196, Society for Economic Dynamics.
- Elena Andreou & Eric Ghysels & Andros Kourtellos, 2010.
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"FaMIDAS: A Mixed Frequency Factor Model with MIDAS structure,"
Temi di discussione (Economic working papers)
788, Bank of Italy, Economic Research and International Relations Area.
- Cecilia Frale & Libero Monteforte, . "FaMIDAS: A Mixed Frequency Factor Model with MIDAS structure," Working Papers 3, Department of the Treasury, Ministry of the Economy and of Finance.
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