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Can Demographics improve the forecast accuracy of Inflation? Evidence from United Kingdom

Saidy, Dodou LU (2016) NEKN01 20161
Department of Economics
Abstract
This paper seeks to determine whether demographics can increase the forecasting accuracy of United Kingdom’s inflation rate. Five forecasting models were employed, namely: the benchmark ARMA model, the SW (2002) model with and without a demographic factor and the FHLR(2003) model with and without a demographic factor. Both the out of sample and the in-sample forecast results indicates that, factor models with a demographic factor have a relatively lower RMSE than the corresponding models without demographic factor. And among the five models considered, the FHLR (2003) model has a lower RMSE relative to both the SW (2002) model and the ARMA model, while the SW (2002) model also has a lower RMSE relative to the ARMA model. The DM-test for... (More)
This paper seeks to determine whether demographics can increase the forecasting accuracy of United Kingdom’s inflation rate. Five forecasting models were employed, namely: the benchmark ARMA model, the SW (2002) model with and without a demographic factor and the FHLR(2003) model with and without a demographic factor. Both the out of sample and the in-sample forecast results indicates that, factor models with a demographic factor have a relatively lower RMSE than the corresponding models without demographic factor. And among the five models considered, the FHLR (2003) model has a lower RMSE relative to both the SW (2002) model and the ARMA model, while the SW (2002) model also has a lower RMSE relative to the ARMA model. The DM-test for equal forecasting accuracy indicates that the SW (2002) model with a demographic factor have a superior forecasting accuracy relative to the corresponding model without a demographic factor. Similar results were found with the FHLR (2003) model with and without a demographic factor. Thus, among the four factor models, the two models with a demographic factor systematically outperform the corresponding two models without a demographic factor. (Less)
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author
Saidy, Dodou LU
supervisor
organization
course
NEKN01 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Forecasting, Inflation, Demographics, RMSE, DM-test, Stock and Watson (2002), Forni et al (2003)
language
English
id
8891058
date added to LUP
2016-09-09 14:02:30
date last changed
2016-09-09 14:02:30
@misc{8891058,
  abstract     = {{This paper seeks to determine whether demographics can increase the forecasting accuracy of United Kingdom’s inflation rate. Five forecasting models were employed, namely: the benchmark ARMA model, the SW (2002) model with and without a demographic factor and the FHLR(2003) model with and without a demographic factor. Both the out of sample and the in-sample forecast results indicates that, factor models with a demographic factor have a relatively lower RMSE than the corresponding models without demographic factor. And among the five models considered, the FHLR (2003) model has a lower RMSE relative to both the SW (2002) model and the ARMA model, while the SW (2002) model also has a lower RMSE relative to the ARMA model. The DM-test for equal forecasting accuracy indicates that the SW (2002) model with a demographic factor have a superior forecasting accuracy relative to the corresponding model without a demographic factor. Similar results were found with the FHLR (2003) model with and without a demographic factor. Thus, among the four factor models, the two models with a demographic factor systematically outperform the corresponding two models without a demographic factor.}},
  author       = {{Saidy, Dodou}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Can Demographics improve the forecast accuracy of Inflation? Evidence from United Kingdom}},
  year         = {{2016}},
}