DP7746 Short-Term Inflation Projections: a Bayesian Vector Autoregressive approach
|Author(s):||Domenico Giannone, Michele Lenza, Daphne Momferatou, Luca Onorante|
|Publication Date:||March 2010|
|Keyword(s):||Bayesian VAR, Forecast, Inflation|
|JEL(s):||C11, C13, C33, C53|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7746|
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.