Does the Phillips Curve Help to Forecast Euro Area Inflation?
In: ECB Working Paper No. 20202471
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In: ECB Working Paper No. 20202471
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Working paper
In: ECB Working Paper No. 1189
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We develop a vector autoregressive model with time variation in the mean and the variance. The unobserved time-varying mean is assumed to follow a random walk and we also link it to long-term Consensus forecasts, similar in spirit to so called democratic priors. The changes in variance are modelled via stochastic volatility. The proposed Gibbs sampler allows the researcher to use a large cross-sectional dimension in a feasible amount of computational time. The slowly changing mean can account for a number of secular developments such as changing inflation expectations, slowing productivity growth or demographics. We show the good forecasting performance of the model relative to popular alternatives, including standard Bayesian VARs with Minnesota priors, VARs with democratic priors and standard time-varying parameter VARs for the euro area, the United States and Japan. In particular, incorporating survey forecast information helps to reduce the uncertainty about the unconditional mean and along with the time variation improves the long-run forecasting performance of the VAR models.
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In: ECB Working Paper No. 1733
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In: CEPR Discussion Paper No. DP9931
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In: OECD journal: journal of business cycle measurement and analysis: a joint publication of OECD and CIRET, Volume 2010, Issue 1, p. 1-22
ISSN: 1995-2899
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In: ECB Working Paper No. 2023/2875
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In: Banco de Espana Working Paper No. 2138
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In: Deutsche Bundesbank Discussion Paper No. 48/2021
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In: ECB Working Paper No. 2021/2543
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In: ECB Working Paper No. 2021/2604
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