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Phillips curve inflation forecasts

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  • James H. Stock
  • Mark W. Watson

Abstract

This paper surveys the literature since 1993 on pseudo out-of-sample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and clarifies this literature using a consistent data set and methodology. The literature review and empirical results are gloomy and indicate that Phillips curve forecasts (broadly interpreted as forecasts using an activity variable) are better than other multivariate forecasts, but their performance is episodic, sometimes better than and sometimes worse than a good (not naïve) univariate benchmark. The authors provide some preliminary evidence characterizing successful forecasting episodes.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal Conference Series ; [Proceedings].

Volume (Year): 53 (2008)
Issue (Month): ()
Pages:

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Handle: RePEc:fip:fedbcp:y:2008:n:53:x:2

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Related research

Keywords: Inflation (Finance) ; Unemployment ; Phillips curve;

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References

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  1. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
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  3. Canova, Fabio, 2002. "G-7 Inflation forecasts," Working Paper Series 0151, European Central Bank.
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  8. Wu, Tao, 2006. "Macro Factors and the Affine Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1847-1875, October.
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  18. Clark, Todd E. & McCracken, Michael W., 2006. "The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1127-1148, August.
  19. Banerjee, Anindya & Marcellino, Massimiliano, 2006. "Are there any reliable leading indicators for US inflation and GDP growth?," International Journal of Forecasting, Elsevier, vol. 22(1), pages 137-151.
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  21. Scott Brave & Jonas D. M. Fisher, 2004. "In search of a robust inflation forecast," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 12-31.
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  25. Marie Diron & Benoît Mojon, 2008. "Are inflation targets good inflation forecasts?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 33-45.
  26. Canova, Fabio, 2007. "G-7 Inflation Forecasts: Random Walk, Phillips Curve Or What Else?," Macroeconomic Dynamics, Cambridge University Press, vol. 11(01), pages 1-30, February.
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