Browsing by Author "Fuentes-Fuentes, Mariany"
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- Pronósticos univariados de inflación para Costa Rica con volatilidad estocástica y efectos GARCHThis paper estimates univariate models for forecasting inflation in Costa Rica to be used as an input in the monetary policy formulation of the Central Bank of Costa Rica (BCCR). We estimate 14 specifications that consider several assumptions about the functional form and the statistical properties of the data generating process. We estimate unobserved components models and ARMA models, with different specifications for the conditional mean and several assumptions about the behaviour of the variance: homocedasticity, GARCH effects and stochastic volatility. The forecasting properties of these models were rigorously evaluated following the recommendations in the literature about optimal forecasts, and then the best-performing forecasts were included in a combination. We found that the forecasts from unobserved components models showed the best performance, and that inclusion of stochastic volatility improved forecasting performance at longer horizons. At shorter horizons, the forecasts with better performance were more precise than the Bayesian forecasts currently used at the BCCR. The combination improves on the performance of individual forecasts at all horizons. We recommend using the proposed combination along with the Bayesian forecasts, especially at longer horizons: 6 and 12 months. Then, at 1 and 3-month horizon, it is better to use either the combination or the UC forecasts, because these encompass the others at these horizons. Key