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Bayesian VAR Models for Forecasting Irish Inflation

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  • Kenny, Geoff
  • Meyler, Aidan
  • Quinn, Terry

Abstract

In this paper we focus on the development of multiple time series models for forecasting Irish Inflation. The Bayesian approach to the estimation of vector autoregressive (VAR) models is employed. This allows the estimated models combine the evidence in the data with any prior information which may also be available. A large selection of inflation indicators are assessed as potential candidates for inclusion in a VAR. The results confirm the significant improvement in forecasting performance which can be obtained by the use of Bayesian techniques. In general, however, forecasts of inflation contain a high degree of uncertainty. The results are also consistent with previous research in the Central Bank of Ireland which stresses a strong role for the exchange rate and foreign prices as a determinant of Irish prices.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11360.

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Date of creation: Dec 1998
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Publication status: Published in Central Bank and Financial Services Authority of Ireland Technical Paper Series 4/RT/98.1998(1998): pp. 1-37
Handle: RePEc:pra:mprapa:11360

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Keywords: Bayesian; BVAR; inflation forecasts; Ireland;

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References

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  1. Victor Zarnowitz & Phillip Braun, 1993. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Chapters, National Bureau of Economic Research, Inc, in: Business Cycles, Indicators and Forecasting, pages 11-94 National Bureau of Economic Research, Inc.
  2. Stephen K. McNees, 1986. "The accuracy of two forecasting techniques: some evidence and an interpretation," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Mar, pages 20-31.
  3. Kenny, Geoff & McGettigan, Donal, 1999. "Modelling Traded, Non-traded and Aggregate Inflation in a Small Open Economy: The Case of Ireland," Manchester School, University of Manchester, University of Manchester, vol. 67(1), pages 60-88, January.
  4. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  5. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Working Papers 5161, National Bureau of Economic Research, Inc.
  6. Alberola, Enrique & Tyrväinen, Timo, 1998. "Is There Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries," Research Discussion Papers, Bank of Finland 15/1998, Bank of Finland.
  7. Luis J. Álvarez & Fernando C. Ballabriga & Javier Jareño, 1995. "Un modelo macroeconométrico trimestral para la economía española," Banco de Espa�a Working Papers, Banco de Espa�a 9524, Banco de Espa�a.
  8. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper, Federal Reserve Bank of Richmond 94-04, Federal Reserve Bank of Richmond.
  9. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany.
  10. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report, Federal Reserve Bank of Minneapolis 93, Federal Reserve Bank of Minneapolis.
  11. Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, National Bureau of Economic Research, Inc, in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc.
  12. Callan, Tim & FitzGerald, John, 1989. "Price Determination in Ireland: Effects of Changes in Exchange Rates and Exchange Rate Regimes," Papers, Economic and Social Research Institute (ESRI) ME179, Economic and Social Research Institute (ESRI).
  13. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, Elsevier, vol. 35(1), pages 143-159, May.
  14. repec:cbi:wpaper:4/rt/97 is not listed on IDEAS
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Citations

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Cited by:
  1. Quinn, Terry & Kenny, Geoff & Meyler, Aidan, 1999. "Inflation Analysis: An Overview," MPRA Paper 11361, University Library of Munich, Germany.
  2. Feridun, Mete, 2006. "Forecasting Inflation in Developing Nations: The Case of Pakistan," MPRA Paper 1024, University Library of Munich, Germany, revised 2006.
  3. Caraiani, Petre, 2010. "Forecasting Romanian GDP Using a BVAR Model," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 76-87, December.
  4. Matkovskyy, Roman, 2012. "Прогнозування розвитку економіки України на основі баєсівських авторегресійних (BVAR) моделей з різними priors
    ," MPRA Paper 44725, University Library of Munich, Germany, revised Nov 2012.
  5. Patricio Jaramillo, 2009. "Estimación de Var Bayesianos para la Economía Chilena," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 24(1), pages 101-126, Junio.
  6. Rumler, Fabio & Valderrama, Maria Teresa, 2010. "Comparing the New Keynesian Phillips Curve with time series models to forecast inflation," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 21(2), pages 126-144, August.
  7. Friedrich Fritzer & Gabriel Moser & Johann Scharler, 2002. "Forecasting Austrian HICP and its Components using VAR and ARIMA Models," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 73, Oesterreichische Nationalbank (Austrian Central Bank).
  8. Matkovskyy, Roman, 2012. "The Index of the Financial Safety (IFS) of South Africa and Bayesian Estimates for IFS Vector-Autoregressive Model," MPRA Paper 42173, University Library of Munich, Germany.
  9. repec:cbi:wpaper:3/rt/98 is not listed on IDEAS
  10. Benalal, Nicholai & Diaz del Hoyo, Juan Luis & Landau, Bettina & Roma, Moreno & Skudelny, Frauke, 2004. "To aggregate or not to aggregate? Euro area inflation forecasting," Working Paper Series, European Central Bank 0374, European Central Bank.
  11. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany.

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