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G-7 Inflation Forecasts: Random Walk, Phillips Curve Or What Else?

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  • CANOVA, FABIO

Abstract

This paper compares the forecasting performance of some leading models of inflation for G-7 countries. We show that bivariate and trivariate models suggested by economic theory or statistical analysis are not much better than univariate ones. Phillips curve specifications fit well into this class. Improvements in both the MSE of the forecasts and turning point prediction are obtained with time-varying coefficients models, which exploit international interdependencies. The performance of the latter class of models is stable throughout the 1990s.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 01 (February)
Pages: 1-30

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:01:p:1-30_05

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Cited by:
  1. D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
  2. Kitov, Ivan & KItov, Oleg, 2013. "Does Banque de France control inflation and unemployment?," MPRA Paper 50239, University Library of Munich, Germany.
  3. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 53.
  4. Steffen Ahrens & Matthias Hartmann, 2014. "State-dependence vs. Time-dependence: An Empirical Multi-Country Investigation of Price Sluggishness," Kiel Working Papers 1907, Kiel Institute for the World Economy.
  5. Dandan Liu & Dennis Jansen, 2011. "Does a factor Phillips curve help? An evaluation of the predictive power for U.S. inflation," Empirical Economics, Springer, vol. 40(3), pages 807-826, May.
  6. Nyberg , Henri & Saikkonen, Pentti, 2012. "Forecasting with a noncausal VAR model," Research Discussion Papers 33/2012, Bank of Finland.
  7. Rumler, Fabio & Valderrama, Maria Teresa, 2010. "Comparing the New Keynesian Phillips Curve with time series models to forecast inflation," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 126-144, August.
  8. Hasanov, Mübariz & Araç, Aysen & Telatar, Funda, 2010. "Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey," Economic Modelling, Elsevier, vol. 27(5), pages 1103-1115, September.
  9. Hartmann, Matthias & Herwartz, Helmut, 2012. "Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman–Ball hypothesis," Economics Letters, Elsevier, vol. 115(2), pages 144-147.
  10. Kalli, Maria & Griffin, Jim E., 2014. "Time-varying sparsity in dynamic regression models," Journal of Econometrics, Elsevier, vol. 178(2), pages 779-793.

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