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Short-Term Inflation Projections Model and Its Assessment in Latvia

Author

Listed:
  • Andrejs Bessonovs

    (Bank of Latvia)

  • Olegs Krasnopjorovs

    (Bank of Latvia)

Abstract

This paper develops a Short-Term Inflation Projections (STIP) model, which captures cointegrated relationships between highly disaggregated consumer prices and their determinants. We document a significant pass-through of domestic labour costs, crude oil and global food commodity prices to consumer prices in Latvia. We also assess the model's forecast accuracy of Latvia's inflation during 2014–2018 and find that the STIP model statistically significantly outperforms a na?ve benchmark model in real time.

Suggested Citation

  • Andrejs Bessonovs & Olegs Krasnopjorovs, 2020. "Short-Term Inflation Projections Model and Its Assessment in Latvia," Working Papers 2020/01, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:202001
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    inflation forecasting; autoregressive distributed lag model; pass-through; oil prices; food commodity prices; labour costs;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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