14 Pages Posted: 1 Oct 2013
Date Written: September 30, 2013
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: 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