Econometric modelling for short-term inflation forecasting in the euro area

Antoni Espasa and Rebeca Albacete
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Rebeca Albacete: Departamento de Economía Aplicada, Universidad Autónoma de Madrid, Postal: Departamento de Economía Aplicada, Universidad Autónoma de Madrid

Journal of Forecasting, 2007, vol. 26, issue 5, 303-316

Abstract: This paper examines the problem of forecasting macro-variables which are observed monthly (or quarterly) and result from geographical and sectorial aggregation. The aim is to formulate a methodology whereby all relevant information gathered in this context could provide more accurate forecasts, be frequently updated, and include a disaggregated explanation as useful information for decision-making. The appropriate treatment of the resulting disaggregated data set requires vector modelling, which captures the long-run restrictions between the different time series and the short-term correlations existing between their stationary transformations. Frequently, due to a lack of degrees of freedom, the vector model must be restricted to a block-diagonal vector model. This methodology is applied in this paper to inflation in the euro area, and shows that disaggregated models with cointegration restrictions improve accuracy in forecasting aggregate macro-variables. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:26:y:2007:i:5:p:303-316

DOI: 10.1002/for.1021

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