BAYESIAN FORECASTS COMBINATION TO IMPROVE THE ROMANIAN INFLATION PREDICTIONS BASED ON ECONOMETRIC MODELS

Mihaela Simionescu

UTMS Journal of Economics, 2014, vol. 5, issue 2, 131-140

Abstract: There are many types of econometric models used in predicting the inflation rate, but in this study we used a Bayesian shrinkage combination approach. This methodology is used in order to improve the predictions accuracy by including information that is not captured by the econometric models. Therefore, experts’ forecasts are utilized as prior information, for Romania these predictions being provided by Institute for Economic Forecasting (Dobrescu macromodel), National Commission for Prognosis and European Commission. The empirical results for Romanian inflation show the superiority of a fixed effects model compared to other types of econometric models like VAR, Bayesian VAR, simultaneous equations model, dynamic model, log-linear model. The Bayesian combinations that used experts’ predictions as priors, when the shrinkage parameter tends to infinite, improved the accuracy of all forecasts based on individual models, outperforming also zero and equal weights predictions and naïve forecasts.

Keywords: Bayesian forecasts combination; forecasts accuracy; prior; shrinkage parameter; econometric model. (search for similar items in EconPapers)
JEL-codes: C51 C52 C53 E37 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://utmsjoe.mk/files/Vol.%205%20No.%202/2-1-Simionescu(1).pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:utmsje:0106

Access Statistics for this article

UTMS Journal of Economics is currently edited by Prof. Ace Milenkovski, PhD

More articles in UTMS Journal of Economics from University of Tourism and Management, Skopje, Macedonia Contact information at EDIRC.
Bibliographic data for series maintained by Assistant Professor. Dejan Nakovski, PhD ().