Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 146: Forecasting Goods and Services Inflation in Sweden

Marcus Mossfeldt () and Pär Stockhammar ()
Additional contact information
Marcus Mossfeldt: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Pär Stockhammar: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: In this paper, we make use of a Bayesian VAR (BVAR) model to con-duct an out-of-sample forecast exercise for goods and services inflation in Sweden. Our interest in goods and services prices stems from the fact that they make up over 70 per cent of the CPI index and that they are more directly affected by the macroeconomic development than other parts of the CPI. We find that the BVAR models generally outperform both univariate models for goods and services inflation, as well as forecasts made by the National Institute of Economic Research in Sweden. This might indicate that Faust and Wright’s (2013) rather negative conclusion that inflation models cannot beat judgmental forecasts and inflation expectations might be wrong, at least in the case of Sweden.

Keywords: Bayesian VAR; Inflation; Out-of-sample forecasting precision

JEL-codes: C53; E31

25 pages, October 12, 2016

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