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Short-Term Inflation Projections: a Bayesian Vector Autoregressive approach

Author

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

Abstract

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.

Suggested Citation

  • Giannone, Domenico & Lenza, Michele & Momferatou, Daphne & Onorante, Luca, 2010. "Short-Term Inflation Projections: a Bayesian Vector Autoregressive approach," CEPR Discussion Papers 7746, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7746
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    More about this item

    Keywords

    Bayesian VAR; Forecast; Inflation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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