BoE paper seeks to improve forecasts with adaptive model
Authors say their model delivers ‘substantial improvements’
Economists can improve inflation forecasts by using a model with time-varying parameters combined with a t-distribution, according to results presented in a Bank of England (BoE) staff working paper, published on January 8.
Davide Delle Monache of the Bank of Italy and Ivan Petrella of the BoE extend the existing literature, which has tended to use adaptive models based on normal distributions, in their paper Adaptive models and heavy tails. Their model allows them to filter outliers, so they do
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