Forecasting UK GDP growth, inflation and interest rates under structural change: a comparison of models with time-varying parameters

Alina Barnett, Haroon Mumtaz and Konstantinos Theodoridis

No 450, Bank of England working papers from Bank of England

Abstract: Evidence from a large and growing empirical literature strongly suggests that there have been changes in inflation and output dynamics in the United Kingdom. This is largely based on a class of econometric models that allow for time-variation in coefficients and volatilities of shocks. While these have been used extensively to study evolving dynamics and for structural analysis, there is little evidence on their usefulness in forecasting UK output growth, inflation and the short-term interest rate. This paper attempts to fill this gap by comparing the performance of a wide variety of time-varying parameter models in forecasting output growth, inflation and a short rate. We find that allowing for time-varying parameters can lead to large and statistically significant gains in forecast accuracy.

Keywords: Time-varying parameters; stochastic volatility; VAR; FAVAR; forecasting; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C32 E37 E47 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2012-05-18
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0450

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