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Do Unobserved Components Models Forecast Inflation in Russia?

14 Pages Posted: 1 Oct 2013  

Bulat Gafarov

Pennsylvania State University; National Research University Higher School of Economics

Date Written: September 30, 2013

Abstract

I apply the model with unobserved components and stochastic volatility (UC-SV) to forecast the Russian consumer price index. I extend the model which was previously suggested as a model for inflation forecasting in the USA to take into account a possible difference in model parameters and seasonal factor. Comparison of the out-of-sample forecasting performance of the linear AR model and the UC-SV model by mean squared error of prediction shows better results for the latter model. Relatively small absolute value of the standard error of the forecasts calculated by the UC-SV model makes it a reasonable candidate for a real time forecasting method for the Russian CPI.

Keywords: Stochastic volatility, MCMC, Russia, CPI, forecasting

JEL Classification: C53, E37

Suggested Citation

Gafarov, Bulat, Do Unobserved Components Models Forecast Inflation in Russia? (September 30, 2013). Higher School of Economics Research Paper No. WP BRP 35/EC/2013. Available at SSRN: https://ssrn.com/abstract=2333459 or http://dx.doi.org/10.2139/ssrn.2333459

Bulat Gafarov (Contact Author)

Pennsylvania State University ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

HOME PAGE: http://www.personal.psu.edu/bzg134/research.html

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, PA Moscow 119017
Russia

HOME PAGE: http://www.personal.psu.edu/bzg134/research.html

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