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Forecasting inflation and inflation expectations in small open economies: A comparison of market and survey based approaches for Jamaica

Author

Listed:
  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

  • Cardel Wright

    (Bank of Jamaica, Kingston, Jamaica)

Abstract

This paper builds a dynamic factor model to obtain both in-sample and out-of-sample forecasts of inflation in Jamaica. The model is estimated with both survey and market data. For the latter, a global latent factor is first extracted from international financial data and then included as an exogenous variable in the estimations with Jamaican data. The results indicate that the estimations with market data provide a much better fit for in-sample and out-of-sample values of inflation and inflation expectations. The dynamic factor, under a parsimonious representation, also outperforms univariate models, Bank of Jamaica's in-house forecasts of inflation and those obtained from an estimated DSGE model.

Suggested Citation

  • Uluc Aysun & Cardel Wright, 2023. "Forecasting inflation and inflation expectations in small open economies: A comparison of market and survey based approaches for Jamaica," Working Papers 2023-03, University of Central Florida, Department of Economics.
    • Handle: RePEc:cfl:wpaper:2023-03ua
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    More about this item

    Keywords

    Jamaica; inflation expectations; forecasting; dynamic factor model; survey data.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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