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Simple ways to forecast inflation: what works best?

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Author Info

  • Brent Meyer
  • Mehmet Pasaogullari

Abstract

There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. We generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to be helpful in predicting the course of inflation. Then we compare their forecast accuracy. We find that no single specification outperforms all others over all time periods. For example, the median and 16 percent trimmed-mean measures outperform all other specifications during the 1990s, and survey-based inflation expectations seem to do better during volatile periods.

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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Commentary.

Volume (Year): (2010)
Issue (Month): Dec ()
Pages:

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Handle: RePEc:fip:fedcec:y:2010:i:dec6:n:2010-17

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Keywords: Inflation (Finance) ; Forecasting;

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Cited by:
  1. Theodor M. Crone & N. Neil K. Khettry & Loretta J. Mester & Jason A. Novak, 2011. "Core measures of inflation as predictors of total inflation," Working Papers 11-24, Federal Reserve Bank of Philadelphia.
  2. Brent Meyer & Guhan Venkatu, 2012. "Trimmed-mean inflation statistics: just hit the one in the middle," Working Paper 1217, Federal Reserve Bank of Cleveland.
  3. Brent Meyer & Saeed Zaman, 2013. "It’s not just for inflation: The usefulness of the median CPI in BVAR forecasting," Working Paper 1303, Federal Reserve Bank of Cleveland.
  4. Alan K. Detmeister, 2012. "What should core inflation exclude?," Finance and Economics Discussion Series 2012-43, Board of Governors of the Federal Reserve System (U.S.).
  5. Kapur, Muneesh, 2013. "Revisiting the Phillips curve for India and inflation forecasting," Journal of Asian Economics, Elsevier, vol. 25(C), pages 17-27.
  6. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).

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