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Factor Model Forecasting of Inflation in Croatia

Author

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  • Davor Kunovac

    (Croatian National Bank, Zagreb)

Abstract

This paper tests whether information derived from 144 economic variables (represented by only a few constructed factors) can be used for the forecasting of consumer prices in Croatia. The results obtained show that the use of one factor enhances the precision of the benchmark model’s ability to forecast inflation. The methodology used is sufficiently general to be able to be applied directly for the forecasting of other economic variables.

Suggested Citation

  • Davor Kunovac, 2007. "Factor Model Forecasting of Inflation in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 31(4), pages 371-393.
  • Handle: RePEc:ipf:finteo:v:31:y:2007:i:4:p:371-393
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    File URL: http://www.ijf.hr/eng/FTP/2007/4/kunovac.pdf
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    References listed on IDEAS

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    8. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April.
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    Cited by:

    1. Poghosyan, K., 2012. "Structural and reduced-form modeling and forecasting with application to Armenia," Other publications TiSEM ad1a24c3-15e6-4f04-b338-3, Tilburg University, School of Economics and Management.
    2. Mirna Dumičić & Ivo Krznar, 2013. "Financial Conditions and Economic Activity," Working Papers 37, The Croatian National Bank, Croatia.
    3. Milena Lipovina-Božović, 2013. "A Comparison Of The Var Model And The Pc Factor Model In Forecasting Inflation In Montenegro," Economic Annals, Faculty of Economics, University of Belgrade, vol. 58(198), pages 115-136, July - Se.
    4. Hyun Hak Kim, 2013. "Forecasting Macroeconomic Variables Using Data Dimension Reduction Methods: The Case of Korea," Working Papers 2013-26, Economic Research Institute, Bank of Korea.

    More about this item

    Keywords

    factor models; time series analysis; inflation; forecasting;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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