How Important is Variable Selection for Forecasting Turkish Inflation?

Ömer Özcicek ()
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Ömer Özcicek: Gaziantep Üniversitesi, Iktisadi ve Idari Bilimler Fakültesi, Iktisat Bölümü

Ege Academic Review, 2001, vol. 1, issue 2, 61-72

Abstract: This paper is on how to improve Turkish inflation forecasts. The resuhs show ih al the forecast accuracy does not improve, as more variables are included into the model. This is true even in Bayesian VAR models in which non-sample information is included in estimation. Thus, it is important that onlyfevv relevant variables are used. Studies of inflation of other countries show that capacity utilization rate is an important leuding indicator of inflation. In this study, we found that using capacity utilization rate improves Turkish CPÝ inflation forecast. However, the variables to be considered in WPI forecast are CPÝ inflation and change in production.

Date: 2001
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