Forecasting the Polish Inflation Using Bayesian VAR Models with Seasonality

Damian Stelmasiak and Grzegorz Szafrański

Central European Journal of Economic Modelling and Econometrics, 2016, vol. 8, issue 1, 21-42

Abstract: Bayesian VAR (BVAR) models offer a practical solution to the parameter proliferation concerns as they allow to introduce a priori information on seasonality and persistence of inflation in a multivariate framework. We investigate alternative prior specifications in the case of time series with a clear seasonal pattern. In the empirical part we forecast the monthly headline inflation in the Polish economy over the period 2011-2014 employing two popular BVAR frameworks: a steady-state reduced-form BVAR and just-identified structural BVAR model. To evaluate the forecast performance we use the pseudo realtime vintages of timely information from consumer and financial markets. We compare different models in terms of both point and density forecasts. Using formal testing procedure for density-based scores we provide the empirical evidence of superiority of the steady-state BVAR specifications with tight seasonal priors.

Keywords: Bayesian VAR models; seasonality; forecasting inflation; densitybased scores (search for similar items in EconPapers)
JEL-codes: C32 C53 E31 E37 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:8:y:2016:i:1:p:21-42

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