This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Clark, Todd E.
McCracken, Michael W.

Additional information is available for the following registered author(s):

Abstract

This paper evaluates potential explanations for the sometimes poor forecasting performance of the Phillips curve. One explanation is that out-of-sample metrics are noisy or, equivalently, have relatively low power. Another potential explanation is instability in the coefficients of the model. To assess these forces, this paper compares sample forecasting results to results from bootstrap simulations of models that either assume stability or allow breaks in the coefficients of the model. This analysis indicates that a significant portion of the weakness of the out-of-sample evidence is attributable to power limitations. But instabilities in the coefficients on the output gap also play a role.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dx.doi.org/10.1353/mcb.2006.0068
File Format: application/pdf
File Function: full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 5 (August)
Pages: 1127-1148
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:5:p:1127-1148

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November. [Downloadable!] (restricted)
    Other versions:
  2. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May. [Downloadable!] (restricted)
    Other versions:
  3. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-43, May. [Downloadable!] (restricted)
  4. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
    Other versions:
  5. Todd E. Clark & Michael W. McCracken, 2001. "Evaluating long-horizon forecasts," Research Working Paper RWP 01-14, Federal Reserve Bank of Kansas City. [Downloadable!]
  6. Rogerson, Richard, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter. [Downloadable!] (restricted)
  7. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  8. Rudebusch, Glenn D, 2005. "Assessing the Lucas Critique in Monetary Policy Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 245-72, April.
    Other versions:
  9. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Todd E. Clark & Michael W. McCracken, 2002. "Forecast-based model selection in the presence of structural breaks," Research Working Paper RWP 02-05, Federal Reserve Bank of Kansas City. [Downloadable!]
  11. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February. [Downloadable!] (restricted)
  12. Kilian, Lutz, 1999. "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 491-510, Sept.-Oct. [Downloadable!]
  13. Anindya BANERJEE & Massimiliano MARCELLINO, 2002. "Are There Any Reliable Leading Indicators for US Inflation and GDP Growth?," Economics Working Papers ECO2002/21, European University Institute. [Downloadable!]
    Other versions:
  14. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    Other versions:
  15. Diebold, Francis X. & Chen, Celia, 1996. "Testing structural stability with endogenous breakpoint A size comparison of analytic and bootstrap procedures," Journal of Econometrics, Elsevier, vol. 70(1), pages 221-241, January. [Downloadable!] (restricted)
    Other versions:
  16. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-2), pages 297-346. [Downloadable!]
  17. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September. [Downloadable!] (restricted)
  18. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November. [Downloadable!] (restricted)
    Other versions:
  19. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  20. Gert Peersman & Frank Smets, 1999. "Uncertainty and the Taylor rule in a simple model of the Euro-area economy," Proceedings, Federal Reserve Bank of San Francisco.
  21. David Reifschneider & Robert Tetlow & John Williams, 1999. "Aggregate disturbances, monetary policy, and the macroeconomy: the FRB/US perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-19. [Downloadable!]
  22. Canova, Fabio, 2002. "G-7 Inflation Forecasts," CEPR Discussion Papers 3283, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  23. Fabio Canova, 2002. "G-7 inflation forecasts," Working Paper Series 151, European Central Bank. [Downloadable!]
  24. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July. [Downloadable!] (restricted)
  25. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March. [Downloadable!] (restricted)
    Other versions:
  26. Gerhard Ruenstler, 2002. "The information content of real-time output GAP estimates: an application to the Euro area," Working Paper Series 182, European Central Bank. [Downloadable!]
  27. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November. [Downloadable!] (restricted)
  28. Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics 297., Boston College Department of Economics. [Downloadable!]
    Other versions:
  29. Frédérick Demers, 2003. "The Canadian Phillips Curve and Regime Shifting," Working Papers 03-32, Bank of Canada. [Downloadable!]
  30. Cara S. Lown & Robert W. Rich, 1997. "Is there an inflation puzzle?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-77. [Downloadable!]
    Other versions:
  31. Staiger, Douglas & Stock, James H & Watson, Mark W, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter. [Downloadable!] (restricted)
  32. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  33. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April. [Downloadable!] (restricted)
  34. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
    Other versions:
  35. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
    Other versions:
  36. Gerlach, Stefan & Smets, Frank, 1999. "Output gaps and monetary policy in the EMU area1," European Economic Review, Elsevier, vol. 43(4-6), pages 801-812, April. [Downloadable!] (restricted)
  37. 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. [Downloadable!] (restricted)
    Other versions:
  38. Allan Timmermann & M. Hashem Pesaran, 2002. "Market Timing and Return Prediction under Model Instability," FMG Discussion Papers dp412, Financial Markets Group. [Downloadable!] (restricted)
    Other versions:
  39. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44. [Downloadable!]
  40. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July. [Downloadable!] (restricted)
    Other versions:
  41. Lutz Kilian & Atsushi Inoue, 2002. "In-Sample or out-of-sample tests of predictability: which one should we use?," Working Paper Series 195, European Central Bank. [Downloadable!]
    Other versions:
  42. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 583-601, June.
    Other versions:
  43. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
    Other versions:
  44. West, Kenneth D, 2001. "Tests for Forecast Encompassing When Forecasts Depend on Estimated Regression Parameters," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 29-33, January.
  45. Iris Claus, 2000. "Is the output gap a useful indicator of inflation?," Reserve Bank of New Zealand Discussion Paper Series DP2000/05, Reserve Bank of New Zealand. [Downloadable!]
  46. Arturo Estrella & Jeffrey C. Fuhrer, 2003. "Monetary Policy Shifts and the Stability of Monetary Policy Models," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 94-104, 01. [Downloadable!] (restricted)
  47. Marcellino, Massimiliano, 2002. "Instability and Non-Linearity in the EMU," CEPR Discussion Papers 3312, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  48. Meese, Richard A & Rogoff, Kenneth, 1988. " Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance, American Finance Association, vol. 43(4), pages 933-48, September. [Downloadable!] (restricted)
    Other versions:
  49. Richard Clarida & Lucio Sarno & Mark Taylor & Giorgio Valente, 2001. "The Out-of-Sample Success of Term Structure Models as Exchange Rate Predictors: A Step Beyond," NBER Working Papers 8601, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  50. 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. [Downloadable!]
  51. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  52. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
  53. West, Kenneth D, 1996. "Asymptotic Inference about Predictive Ability," Econometrica, Econometric Society, vol. 64(5), pages 1067-84, September. [Downloadable!] (restricted)
    Other versions:
  54. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada. [Downloadable!]
  55. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April. [Downloadable!] (restricted)
    Other versions:
  56. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05. [Downloadable!] (restricted)
    Other versions:
  57. Robert G. King, 2000. "The new IS-LM model : language, logic, and limits," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 45-103. [Downloadable!]
  58. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
    Other versions:
  59. Gonzalo Camba-Mendez & Diego Rodriguez-Palenzuela, 2001. "Assessment criteria for output gap estimates," Working Paper Series 054, European Central Bank. [Downloadable!]
  60. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    Other versions:
  61. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
    Other versions:
  62. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
  63. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Statistics
Access and download statistics

Did you know? There are NEP reports in over 80 fields that deliver new research to your email.

This page was last updated on 2009-11-12.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.