Short-Term Inflation Projections: A Bayesian Vector Autoregressive Approach

30 Pages Posted: 29 Mar 2010

See all articles by Domenico Giannone

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Michele Lenza

European Central Bank (ECB)

Daphne Momferatou

European Central Bank (ECB)

Luca Onorante

European Central Bank (ECB); European University Institute

Date Written: March 2010

Abstract

In this paper, we construct a large Bayesian Vector Autoregressive model (BVAR) for the Euro Area that captures the complex dynamic inter-relationships between the main components of the Harmonized Index of Consumer Price (HICP) and their determinants. The model is estimated using Bayesian shrinkage. We evaluate the model in real time and find that it produces accurate forecasts. We use the model to study the pass-through of an oil shock and to study the evolution of inflation during the global financial crisis.

Keywords: Bayesian VAR, Forecast, Inflation

JEL Classification: C11, C13, C33, C53

Suggested Citation

Giannone, Domenico and Lenza, Michele and Momferatou, Daphne and Onorante, Luca, Short-Term Inflation Projections: A Bayesian Vector Autoregressive Approach (March 2010). CEPR Discussion Paper No. DP7746. Available at SSRN: https://ssrn.com/abstract=1578076

Domenico Giannone (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Daphne Momferatou

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Luca Onorante

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

European University Institute

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

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