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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. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February.
  2. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany.
  3. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  4. Callan, Tim & FitzGerald, John, 1989. "Price Determination in Ireland: Effects of Changes in Exchange Rates and Exchange Rate Regimes," Papers ME179, Economic and Social Research Institute (ESRI).
  5. Enrique Alberola-Ila & Tymo Tyrväinen, 1998. "Is there Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries," Banco de Espa�a Working Papers 9823, Banco de Espa�a.
  6. 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, vol. 67(1), pages 60-88, January.
  7. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Working Papers 5161, National Bureau of Economic Research, Inc.
  8. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  9. Victor Zarnowitz & Phillip Braun, 1993. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 11-94 National Bureau of Economic Research, Inc.
  10. Martin Feldstein, 1996. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Working Papers 5469, National Bureau of Economic Research, Inc.
  11. Stephen K. McNees, 1986. "The accuracy of two forecasting techniques: some evidence and an interpretation," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 20-31.
  12. Luis J. Álvarez & Fernando C. Ballabriga & Javier Jareño, 1995. "Un modelo macroeconométrico trimestral para la economía española," Banco de Espa�a Working Papers 9524, Banco de Espa�a.
  13. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  14. Kenny, Geoff & McGettigan, Donal, 1997. "A Monetary Approach to the Analysis of Inflation in Ireland," Research Technical Papers 4/RT/97, Central Bank of Ireland.
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Cited by:
  1. 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 0374, European Central Bank.
  2. 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.
  3. Fabio Rumler & Maria Teresa Valderrama, 2008. "Comparing the New Keynesian Phillips Curve with Time Series Models to Forecast Inflation," Working Papers 148, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Feridun, Mete, 2006. "Forecasting Inflation in Developing Nations: The Case of Pakistan," MPRA Paper 1024, University Library of Munich, Germany, revised 2006.
  5. Patricio Jaramillo, 2008. "Estimación de Var Bayesianos para la Economía Chilena," Working Papers Central Bank of Chile 508, Central Bank of Chile.
  6. Quinn, Terry & Kenny, Geoff & Meyler, Aidan, 1999. "Inflation Analysis: An Overview," Research Technical Papers 1/RT/99, Central Bank of Ireland.
  7. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany.
  8. Caraiani, Petre, 2010. "Forecasting Romanian GDP Using a BVAR Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 76-87, December.
  9. Friedrich Fritzer & Gabriel Moser & Johann Scharler, 2002. "Forecasting Austrian HICP and its Components using VAR and ARIMA Models," Working Papers 73, Oesterreichische Nationalbank (Austrian Central Bank).
  10. 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.

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