Short term inflation forecasting: the M.E.T.A. approach

Giacomo Sbrana (), Andrea Silvestrini () and Fabrizio Venditti
Additional contact information
Giacomo Sbrana: NEOMA Business School
Andrea Silvestrini: Bank of Italy

No 1016, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Forecasting inflation is an important and challenging task. In this paper we assume that the core inflation components evolve as a multivariate local level process. This model, which is theoretically attractive for modelling inflation dynamics, has been used only to a limited extent to date owing to computational complications with the conventional multivariate maximum likelihood estimator, especially when the system is large. We propose the use of a method called “Moments Estimation Through Aggregation” (M.E.T.A.), which reduces computational costs significantly and delivers prompt and accurate parameter estimates, as we show in a Monte Carlo exercise. In an application to euro-area inflation we find that our forecasts compare well with those generated by alternative univariate constant and time-varying parameter models as well as with those of professional forecasters and vector autoregressions.

Keywords: inflation; forecasting; aggregation; state space models (search for similar items in EconPapers)
JEL-codes: C32 C53 E31 E37 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-ecm, nep-eec, nep-for, nep-mac, nep-mon and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 016/en_tema_1016.pdf (application/pdf)

Related works:
Journal Article: Short-term inflation forecasting: The M.E.T.A. approach (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1016_15

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().