Forecasting Distribution of Inflation Rates: Functional Autoregressive Approach

Thursday 27 February 2014, 1.00PM to 2:00pm

Speaker(s): Yongcheol Shin (York)

Abstract: In line with the recent developments on the statistical analysis of the functional data, we develop the semiparametric functional autoregressive (FAR) modeling approach to the density forecasting analysis of national inflation rates using sectoral inflation rates in the UK. Our framework provides a flexible but powerful alternative for use by the independent researchers to the forecasts made by the central bank. The in sample forecasting evaluation results provide superior performance of our proposed approach compared to the benchmark autoregressive models. Out-of-sample forecasting results suggest that the mean is projected to be stable at 2.3%-2.6% whilst uncertainty bands stay between 1.5% and 4.5% over March 2008 - February 2010, correctly accommodating inflation rates observed during this period. As inflation targeting monetary policies are usually set with recourse to the medium-term forecasts, our proposed work may provide policymakers with an invaluably enriched information set.

Location: Staff Room (EC202)

Admission: Economics Thursday Workshop. For Staff and Postgraduate students