EconPapers    
Economics at your fingertips  
 

The time-varying evolution of inflation risks

Dimitris Korobilis, Bettina Landau, Alberto Musso and Anthoulla Phella

No 2600, Working Paper Series from European Central Bank

Abstract: This paper develops a Bayesian quantile regression model with time-varying parameters (TVPs) for forecasting inflation risks. The proposed parametric methodology bridges the empirically established benefits of TVP regressions for forecasting inflation with the ability of quantile regression to model flexibly the whole distribution of inflation. In order to make our approach accessible and empirically relevant for forecasting, we derive an efficient Gibbs sampler by transforming the state-space form of the TVP quantile regression into an equivalent high-dimensional regression form. An application of this methodology points to a good forecasting performance of quantile regressions with TVPs augmented with specific credit and money-based indicators for the prediction of the conditional distribution of inflation in the euro area, both in the short and longer run, and specifically for tail risks. JEL Classification: C11, C22, C52, C53, C55, E31, E37, E51

Keywords: Bayesian shrinkage; euro area; Horseshoe; inflation tail risks; MCMC; quantile regression; time-varying parameters (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-cwa, nep-ecm, nep-eec, nep-ets, nep-for, nep-mac, nep-mon, nep-ore and nep-rmg
Note: 339070
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2600~8dae8e832f.en.pdf (application/pdf)

Related works:
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:ecb:ecbwps:20212600

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications (officialpublications@ecb.int).

 
Page updated 2024-12-28
Handle: RePEc:ecb:ecbwps:20212600