New Publication: Real-time inflation forecasting with high-dimensional models: the case of Brazil

Check out our new publication on forecasting inflation using large datasets and statistical learning techniques.

Real-time inflation forecasting with high-dimensional models: The case of Brazil
International Journal of Forecasting (2017)
Márcio Garcia, Marcelo C. Medeiros, Gabriel F. R. Vasconcelos

Abstract

We show that high-dimensional econometric models, such as shrinkage and complete subset regression, perform very well in the real-time forecasting of inflation in data-rich environments. We use Brazilian inflation as an application. It is ideal as an example because it exhibits a high short-term volatility, and several agents devote extensive resources to forecasting its short-term behaviour. Thus, precise forecasts made by specialists are available both as a benchmark and as an important candidate regressor for the forecasting models. Furthermore, we combine forecasts based on model confidence sets and show that model combination can achieve superior predictive performances.

 

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