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Bayesian Var Models for Forecasting Irish Inflation

  • Kenny, Geoff

    (Central Bank and Financial Services Authority of Ireland)

  • Meyler, Aidan

    (Central Bank and Financial Services Authority of Ireland)

  • Quinn, Terry

    (Central Bank and Financial Services Authority of Ireland)

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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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 4/RT/98.

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Length: 37 pages
Date of creation: Dec 1998
Date of revision:
Handle: RePEc:cbi:wpaper:4/rt/98
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  1. 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.
  2. 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.
  3. 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.
  4. Kenny, Geoff & Meyler, Aidan & Quinn, Terry, 1998. "Forecasting Irish inflation using ARIMA models," Research Technical Papers 3/RT/98, Central Bank of Ireland.
  5. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236 National Bureau of Economic Research, Inc.
  6. 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.
  7. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
  8. 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.
  9. 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).
  10. 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.
  11. 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.
  12. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  13. 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.
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