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Forecasting inflation: The use of dynamic factor analysis and nonlinear combinations

journal contribution
posted on 2023-03-17, 12:18 authored by SG Hall, GS Tavlas, Y Wang
This paper considers the problem of forecasting inflation in the United States, the euro area, and the United Kingdom in the presence of possible structural breaks and changing parameters. We examine a range of moving window techniques that have been proposed in the literature. We extend previous works by considering factor models using principal components and dynamic factors. We then consider the use of forecast combinations with time-varying weights. Our basic finding is that moving windows do not produce a clear benefit to forecasting. Time-varying combination of forecasts does produce a substantial improvement in forecasting accuracy.

History

Author affiliation

School of Business, University of Leicester

Version

  • AM (Accepted Manuscript)

Published in

Journal of Forecasting

Volume

42

Issue

3 - Special Issue: Advances in Forecasting in Macroeconomics and Financial Markets

Pagination

514-529

Publisher

Wiley

issn

0277-6693

eissn

1099-131X

Copyright date

2023

Available date

2025-01-23

Language

en

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