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Pooling forecasts in linear rational expectations models

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  • Smith, Gregor W.

Abstract

Estimating linear rational expectations models in a limited-information setting requires replacing the expectations of future, endogenous variables either with instrumented, actual values or with forecast survey data. Applying the method of Gottfries and Persson [Empirical examinations of the information sets of economic agents. Quarterly Journal of Economics 103, 251-259], I show how to augment these methods with actual, future values of the endogenous variables to improve statistical efficiency. The method is illustrated with an application to the US hybrid new Keynesian Phillips curve, where traditional, lagged instruments and the median forecast from the Survey of Professional Forecasters both appear to miss significant information used by price-setters, so that forecast pooling with actual values improves the statistical fit to inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 1858-1866

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:11:p:1858-1866

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Keywords: Forecast pooling Recursive projection New Keynesian Phillips curve;

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References

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Cited by:
  1. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-88, March.
  2. James M. Nason & Gregor W. Smith, 2008. "The New Keynesian Phillips curve : lessons from single-equation econometric estimation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 361-395.
  3. repec:spo:wpecon:info:hdl:2441/6g0gsihsjmn5snc9pb0hlas97 is not listed on IDEAS
  4. Paul Hubert & Mirza Harun, 2014. "Inflation expectation dynamics: the role of past present and forward looking information," Sciences Po publications 2014-07, Sciences Po.
  5. Gregor W. Smith & James Yetman, 2007. "The Curse of Irving Fisher (Professional Forecasters' Version)," Working Papers 1144, Queen's University, Department of Economics.

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