Short-term inflation projections model and its assessment in Latvia

Andrejs Bessonovs and Olegs Krasnopjorovs

Baltic Journal of Economics, 2021, vol. 21, issue 2, 184-204

Abstract: This paper builds a short-term inflation projections (STIP) model for Latvia. The model is designed to forecast highly disaggregated consumer prices using cointegrated ARDL approach of [Pesaran, M., & Shin, Y. (1998). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Econometric Society Monographs, 31, 371–413.]. We assess the forecast accuracy of STIP model using out-of-sample forecast exercise and show that our model outperforms both aggregated and disaggregated AR(1) benchmarks. Across inflation components, the forecast accuracy gains are 20–30% forecasting 3 months ahead and 15–55% forecasting 12 months ahead.

Keywords: Inflation forecasting; autoregressive distributed lag model; disaggregated approach; oil prices; food commodity prices; labour costs (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 C53 E31 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Short-Term Inflation Projections Model and Its Assessment in Latvia (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:21:y:2021:i:2:p:184-204

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