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Working Paper

Real-Time Density Nowcasts of US Inflation: A Model-Combination Approach

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We develop a flexible modeling framework to produce density nowcasts for US inflation at a trading-day frequency. Our framework: (1) combines individual density nowcasts from three classes of parsimonious mixed-frequency models; (2) adopts a novel flexible treatment in the use of the aggregation function; and (3) permits dynamic model averaging via the use of weights that are updated based on learning from past performance. Together these features provide density nowcasts that can accommodate non-Gaussian properties. We document the competitive properties of the nowcasts generated from our framework using high-frequency real-time data over the period 2000-2015.
Topics
Inflation
Econometrics modeling and forecasting
10.22.2020ISSN 2573-7953 WP 20-31DOI 10.26509/frbc-wp-202031
Keywords mixed-frequency models, inflation, density nowcasts, density combinations
JEL Classification Codes C15, C53, E3, E37

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Knotek, Edward S., II, and Saeed Zaman. 2020. “Real-Time Density Nowcasts of US Inflation: A Model-Combination Approach.” Federal Reserve Bank of Cleveland, Working Paper No. 20-31. https://doi.org/10.26509/frbc-wp-202031