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Short-Term Inflation Projections: a Bayesian Vector Autoregressive approach

  • Giannone, Domenico
  • Lenza, Michele
  • Momferatou, Daphne
  • Onorante, Luca

In this paper, we construct a large Bayesian Vector Autoregressive model (BVAR) for the Euro Area that captures the complex dynamic inter-relationships between the main components of the Harmonized Index of Consumer Price (HICP) and their determinants. The model is estimated using Bayesian shrinkage. We evaluate the model in real time and find that it produces accurate forecasts. We use the model to study the pass-through of an oil shock and to study the evolution of inflation during the global financial crisis.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7746.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7746
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  1. Christopher A. Sims, 1989. "A nine variable probabilistic macroeconomic forecasting model," Discussion Paper / Institute for Empirical Macroeconomics 14, Federal Reserve Bank of Minneapolis.
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  8. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
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  19. Benalal, Nicholai & Diaz del Hoyo, Juan Luis & Landau, Bettina & Roma, Moreno & Skudelny, Frauke, 2004. "To aggregate or not to aggregate? Euro area inflation forecasting," Working Paper Series 0374, European Central Bank.
  20. Gabriel Fagan & Julian Morgan, 2005. "An overview of the structural econometric models of euro-area central banks," Chapters, in: Econometric Models of the Euro-area Central Banks, chapter 1 Edward Elgar Publishing.
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