Forecasting Inflation in Mongolia: A Dynamic Model Averaging Approach

Abstract This paper investigates the use of dynamic model averaging (DMA) approach for identifying good inflation predictors and forecasting in Mongolia, one most commodity-dependent economies. The DMA allows both a set marginal effects to change over time. Our empirical work resulted several novel findings. First, external variables (i.e., China’s growth, inflation, oil price) play an important role considerably time forecast horizons. Second, among domestic variables, wage M2 growth are currently best short longer Third, leads substantial improvements performance, (2,15) with chosen forgetting factors is performer predicting Mongolia.