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Now-casting inflation using high frequency data

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  • Modugno, Michele

Abstract

This paper proposes a methodology for now-casting and forecasting inflation using data with a sampling frequency which is higher than monthly. The data are modeled as a trading day frequency factor model, with missing observations in a state space representation. For the estimation we adopt the methodology proposed by Bańbura and Modugno (2010). In contrast to other existing approaches, the methodology used in this paper has the advantage of modeling all data within a single unified framework which allows one to disentangle the model-based news from each data release and subsequently to assess its impact on the forecast revision. The results show that the inclusion of high frequency data on energy and raw material prices in our data set contributes considerably to the gradual improvement of the model performance. As long as these data sources are included in our data set, the inclusion of financial variables does not make any considerable improvement to the now-casting accuracy.

Suggested Citation

  • Modugno, Michele, 2013. "Now-casting inflation using high frequency data," International Journal of Forecasting, Elsevier, vol. 29(4), pages 664-675.
    • Handle: RePEc:eee:intfor:v:29:y:2013:i:4:p:664-675
    DOI: 10.1016/j.ijforecast.2012.12.003
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    More about this item

    Keywords

    Factor models; Forecasting; Inflation; Mixed frequencies;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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