Composite Leading Indicators in Forecasting Inflation in Poland

Grzegorz Szafrański

doi:https://doi.org/10.59139/ps.2013.03.7

Grzegorz Szafrański Uniwersytet Łódzki oraz Instytut Ekonomiczny NBP Przegląd Statystyczny. Statistical Review, vol. 60, 2013, 3, pages: 395-416 Published online: 30 September 2013 DOI https://doi.org/10.59139/ps.2013.03.7

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ARTICLE

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ABSTRACT

We present the procedure for a systematic selection of short-term leading indicators for Polish consumer inflation (CPI) from large number of predictors. Using data set of 189 economic and financial time series (available from July 2009 to November 2012) we select the indicators highly (in-sample) correlated with future inflation from 1 to 12 months ahead. Then we perform a direct forecasting exercise on a real-time data base from December 2010 to November 2012. Compared to individual leading indicators we find that few common factors extracted from a principal component analysis (named composite leading indicators) are successful tools for predicting future inflation being precise, unbiased, and more robust to changes in a number of predictors and common factors.

KEYWORDS

leading indicators, factor analysis, inflation in Poland

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