The Time-Varying Evolution of Inflation Risks

Korobilis, D., Landau, B., Musso, A. and Phella, A. (2021) The Time-Varying Evolution of Inflation Risks. Working Paper. European Central Bank. (doi: 10.2866/861413).

Abstract

This paper develops a Bayesian quantile regression model with time-varying parameters (TVPs) for forecasting inflation risks. The proposed parametricmethodology bridges the empirically established benefits of TVP regressions for forecasting inflation with the ability of quantile regression to model flexibly the whole distribution of inflation. In order to make our approach accessible and empirically relevant for forecasting, we derive an efficient Gibbs sampler by transforming the state-space form of the TVP quantile regression into an equivalent high-dimensional regression form. An application of this methodology points to a good forecasting performance of quantile regressions with TVPs augmented with specific credit and money-based indicators for the prediction of the conditional distribution of inflation in the euro area, both in the short and longer run, and specifically for tail risks.

• Item Type: Research Reports or Papers (Working Paper)
• Additional Information: ECB working paper series No. 2600.
• Status: Published
• Glasgow Author(s) Enlighten ID: Phella, Dr Anthoulla
• Authors: Korobilis, D., Landau, B., Musso, A., and Phella, A.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: SSRN Electronic Journal
• Publisher: European Central Bank
• ISSN: 1556-5068
• ISBN: 9789289948531