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Forecasting Inflation Uncertainty in the G7 Countries

Author

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  • Mawuli Segnon

    (Department of Economics (CQE), Westfälische Wilhelms-Universität Münster, Am Stadtgraben 9, 48143 Münster, Germany)

  • Stelios Bekiros

    (Department of Accounting and Finance, Athens University of Economics and Business, Trias 2, GR 11362 Athens, Greece
    Department of Economics, European University Institute, Via delle Fontanelle 18, I-50014 Florence, Italy)

  • Bernd Wilfling

    (Department of Economics (CQE), Westfälische Wilhelms-Universität Münster, Am Stadtgraben 9, 48143 Münster, Germany)

Abstract

There is substantial evidence that inflation rates are characterized by long memory and nonlinearities. In this paper, we introduce a long-memory Smooth Transition AutoRegressive Fractionally Integrated Moving Average-Markov Switching Multifractal specification [ STARFIMA ( p , d , q ) - MSM ( k ) ] for modeling and forecasting inflation uncertainty. We first provide the statistical properties of the process and investigate the finite sample properties of the maximum likelihood estimators through simulation. Second, we evaluate the out-of-sample forecast performance of the model in forecasting inflation uncertainty in the G7 countries. Our empirical analysis demonstrates the superiority of the new model over the alternative STARFIMA ( p , d , q ) - GARCH -type models in forecasting inflation uncertainty.

Suggested Citation

  • Mawuli Segnon & Stelios Bekiros & Bernd Wilfling, 2018. "Forecasting Inflation Uncertainty in the G7 Countries," Econometrics, MDPI, vol. 6(2), pages 1-25, April.
    • Handle: RePEc:gam:jecnmx:v:6:y:2018:i:2:p:23-:d:143630
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation uncertainty; smooth transition; multifractal processes; GARCH processes;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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