A BVAR Forecasting Model For Peruvian Inflation

Luis-Gonzalo Llosa (), Vicente Tuesta () and Marco Vega ()

No 2005-007, Working Papers from Banco Central de Reserva del Perú

Abstract: We build a simple non-structural BVAR forecasting framework to predict key Peruvian macroeconomic data, in particular, inflation and output. Unlike standard applications we build our Litterman prior specification based on the fact that the structure driving the dynamics of the economy might have shifted towards a state where a clear nominal anchor has become well grounded (Inflation Targeting). We compare different BVAR specifications with respect to a ”naive” random walk and we find that they outperform the random walk in terms of inflation forecasts at all horizons. However, our PBI forecasts are not accurate enough to beat a ”naive” random walk.

Keywords: Bayesian VAR; Forecasting; Inflation Targeting (search for similar items in EconPapers)
JEL-codes: E31 E37 E47 C11 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
Date: 2005-11
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Persistent link: http://EconPapers.repec.org/RePEc:rbp:wpaper:2005-007

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