Beating a Random Walk: “Hard Times” for Forecasting Inflation in Post-Oil Boom Years?

Salman Huseynov, Vugar Ahmadov and Shaig Adigozalov

MPRA Paper from University Library of Munich, Germany

Abstract: In this study, we investigate forecasting performance of various univariate and multivariate models in predicting inflation for different horizons. We design our forecast experiment for the post-oil boom years of 2010-2014 and compare forecasting ability of the different models with that of naïve ones. We find that for all forecast horizons simple naïve models have equal forecasting ability with relatively sophisticated models which allow for richer economic dynamics. To check whether forecasting ability of naïve models has not been inferior to relatively sophisticated ones in boom and pre-boom years as well, we repeat our forecast experiment and estimate the models for the period 2003-2006 and keep the years 2006-2010 for undertaking pseudo out-of-sample exercise. Our experiment reveals that surprising forecasting performance of naïve models in post-oil boom years is a new phenomenon and in fact, the employed models have exhibited significant forecasting advantage over naïve ones in boom and pre-boom years. We find that despite declining volatility in inflation over the post-oil boom years, it has become considerably difficult for our models to beat naïve ones due to recently unpredictable behavior of inflation.

Keywords: Inflation; Forecasting; Time Series methods; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C11 C13 C32 C53 (search for similar items in EconPapers)
Date: 2014-10-27
New Economics Papers: this item is included in nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/63515/1/MPRA_paper_63515.pdf original version (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:pra:mprapa:63515

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().