Forecasting inflation and inflation expectations in small open economies: A comparison of market and survey based approaches for Jamaica

Uluc Aysun and Cardel Wright ()
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Cardel Wright: Bank of Jamaica, Kingston, Jamaica

No 2023-03, Working Papers from University of Central Florida, Department of Economics

Abstract: This paper builds a dynamic factor model to obtain both in-sample and out-of-sample forecasts of inflation in Jamaica. The model is estimated with both survey and market data. For the latter, a global latent factor is first extracted from international financial data and then included as an exogenous variable in the estimations with Jamaican data. The results indicate that the estimations with market data provide a much better fit for in-sample and out-of-sample values of inflation and inflation expectations. The dynamic factor, under a parsimonious representation, also outperforms univariate models, Bank of Jamaica's in-house forecasts of inflation and those obtained from an estimated DSGE model.

Keywords: Jamaica; inflation expectations; forecasting; dynamic factor model; survey data. (search for similar items in EconPapers)
JEL-codes: E32 E44 F33 F44 (search for similar items in EconPapers)
Pages: 31 Pages
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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