Recent episodes in global markets have shown that inflationary waves can unfold extremely fast while leading to considerable macroeconomic uncertainty as spiraling inflation expectations become a real threat.
- Speaker
- Date
- Wednesday 15 Mar 2023, 13:00 - 14:00
- Type
- Seminar
- Room
- M1-04
- Building
- Van der Goot Building
In this scenario, real-time inflation nowcasts are of utmost importance for a more timely reaction of monetary policy. To that end, we investigate the predictive content of high-frequency macro-financial indicators to nowcast monthly inflation in an environment characterized by persistently high inflation rates, namely the Brazilian economy of the past decades.
Accurate inflation nowcasts
Using machine learning methods within a Mixed-Data Sampling (MIDAS) structure, we identify two key elements that produce accurate inflation nowcasts on a weekly basis. First, a combination of shrinkage methods with timely price indicators and daily experts' forecasts delivers considerable gains in rising inflation periods compared to the median of market expectations.
COVID-19 Pandemic
In particular, shrinkage-based models can better nowcast the inflation surge following the Covid-19 pandemic. Second, a direct forecasting approach that adjusts model specification based on the forecast horizon and taking into account the real-time flow of data releases leads to higher quality nowcasts.
See also
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