Do unobserved components models forecast inflation in Russia?
I apply the model with unobserved components and stochastic volatility (UC-SV) to forecast the Russian consumer price index. I extend the model which was previously suggested as a model for inflation forecasting in the USA to take into account a possible difference in model parameters and seasonal factor. Comparison of the out-of-sample forecasting performance of the linear AR model and the UC-SV model by mean squared error of prediction shows better results for the latter model. Relatively small absolute value of the standard error of the forecasts calculated by the UC-SV model makes it a reasonable candidate for a real time forecasting method for the Russian CPI.
|Date of creation:||2013|
|Date of revision:|
|Publication status:||Published in WP BRP Series: Economics / EC, September 2013, pages 1-14|
|Contact details of provider:|| Postal: Myasnitskaya 20, Moscow 101000|
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