Gonzalo Llosa () (Interamerican Development Bank and Central bank of Peru) Vicente Tuesta () (Central Bank of Peru) Marco Vega () (Central Bank of Peru)
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We build a simple non-structural BVAR forecasting framework to predict key Peruvian macroeconomic data, in particular, inflation and output. Unlike standard applications we build our Litterman prior specification based on the fact that the structure driving the dynamics of the economy might have shifted towards a state where a clear nominal anchor has become well grounded (Inflation Targeting). We compare different BVAR specifications with respect to a ”naive” random walk and we find that they outperform the random walk in terms of inflation forecasts at all horizons. However, our PBI forecasts are not accurate enough to beat a ”naive” random walk.
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Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number
2005-007.
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