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Predicting Inflation: Does The Quantity Theory Help?

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Author Info
Lance J. Bachmeier
Norman R. Swanson

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Abstract

Various inflation forecasting models are compared for the period 1979--2003 using a simulated out-of-sample forecasting framework. Our findings are (1) M2 has marginal predictive content for inflation; (2) it is necessary to allow for the possibility that money, prices, and output are cointegrated; and (3) cointegration vector parameter estimation error is important when making out-of-sample forecasts. Consistent with previous work, we find a structural break in the early 1990s, but the break was easily detected and would not have affected out-of-sample inflation forecasts. Two Monte Carlo experiments that lend credence to our findings are also reported on.(JEL E31, C32) Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbi039
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 43 (2005)
Issue (Month): 3 (July)
Pages: 570-585
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Handle: RePEc:oup:ecinqu:v:43:y:2005:i:3:p:570-585

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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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.)

  1. Joao Miguel Sousa & Andrea Zaghini, 2007. "Global Monetary Policy Shocks in the G5: a SVAR Approach," CEIS Research Paper 89, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  2. Doyle, Matthew, 2006. "Empirical Phillips Curves in OECD Countries: Has There Been A Common Breakdown?," Staff General Research Papers 12684, Iowa State University, Department of Economics. [Downloadable!]
  3. Anthony Garratt & Gary Koop & Emi Mise & Shaun Vahey, 2008. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2008/13, Reserve Bank of New Zealand. [Downloadable!]
    Other versions:
  4. Berger, Helge & Österholm, Pär, 2007. "Does Money Growth Granger-Cause Inflation in the Euro Area? Evidence from Out-of-Sample Forecasts Using Bayesian VARs," Working Paper Series 2007:30, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Michael Graff, 2008. "The Quantity Theory of Money in Historical Perspective," KOF Working papers 08-196, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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