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Macroeconomic factors for inflation in Argentine 2013-2019

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  • Manuel Lopez Galvan

Abstract

The aim of this paper is to investigate the use of the Factor Analysis in order to identify the role of the relevant macroeconomic variables in driving the inflation. The Macroeconomic predictors that usually affect the inflation are summarized using a small number of factors constructed by the principal components. This allows us to identify the crucial role of money growth, inflation expectation and exchange rate in driving the inflation. Then we use this factors to build econometric models to forecast inflation. Specifically, we use univariate and multivariate models such as classical autoregressive, Factor models and FAVAR models. Results of forecasting suggest that models which incorporate more economic information outperform the benchmark. Furthermore, causality test and impulse response are performed in order to examine the short-run dynamics of inflation to shocks in the principal factors.

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  • Manuel Lopez Galvan, 2020. "Macroeconomic factors for inflation in Argentine 2013-2019," Papers 2005.11455, arXiv.org.
    • Handle: RePEc:arx:papers:2005.11455
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    References listed on IDEAS

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    3. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 387-422.
    4. MacKinnon, James G, 1994. "Approximate Asymptotic Distribution Functions for Unit-Root and Cointegration Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 167-176, April.
    5. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
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