New model predicts inflation uncertainty with past variances, revolutionizing economic forecasting.
The article introduces a new way to model changes in uncertainty over time, building on a previous method called ARCH. The researchers developed a model that considers past variances when predicting current variances. They also figured out the conditions for this model to work and how it relates to previous values. By using maximum likelihood estimation, they were able to estimate and test their model. In an example about inflation uncertainty, they showed how this new approach can be applied in practice.