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Forecasting inflation: a comparison of linear Phillips curve models and nonlinear time serie models

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  • G. Ascari
  • E. Marrocu

    ()

Abstract

The aim of this paper is to analyze the forecasting performance of alternative model for the US inflation rate over the period 1950.1-2002.7. NAIRU Phillips curve models forecasts are contrasted with those obtained by a special class of nonlinear time series models, the threshold autoregressive models. The forecast evaluation is conducted on point and density forecasts. The results show that overall the non linear specification are better able to capture the distributional features of the series, although in terms of MSFE the Phillips curve specification can yield noticeable forecasting gains for medium and long term horizons. Previous finding on the forecasting superiority of the simple na�ve model are confuted.

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Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200307.

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Date of creation: 2003
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Handle: RePEc:cns:cnscwp:200307

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Keywords: forecasting; inflation; threshold models; phillips curve;

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References

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  1. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 195-222, October.
  2. Diebold, Francis X. & Nason, James A., 1990. "Nonparametric exchange rate prediction?," Journal of International Economics, Elsevier, Elsevier, vol. 28(3-4), pages 315-332, May.
  3. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-49, Board of Governors of the Federal Reserve System (U.S.).
  4. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  5. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
  6. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(1), pages 33-49, Winter.
  7. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(465), pages 664-86, July.
  8. Francis X. Diebold & Anthony S. Tay & Kenneth F. Wallis, 1998. "Evaluating Density Forecasts of Inflation: The Survey of Professional Forecasters," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 98-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1492, C.E.P.R. Discussion Papers.
  10. Anthony Tay & Kenneth F. Wallis, 2000. "Density Forecasting: A Survey," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0370, Econometric Society.
  11. Clements, M.P. & Smith J., 1998. "Evaluating The Forecast of Densities of Linear and Non-Linear Models: Applications to Output Growth and Unemployment," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 509, University of Warwick, Department of Economics.
  12. Clements, M.P. & Smith, J., 1998. "Non-Linearities in Exchange Rates," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 504, University of Warwick, Department of Economics.
  13. Boero, Gianna & Marrocu, Emanuela, 2002. "The Performance of Non-linear Exchange Rate Models: A Forecasting Comparison," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(7), pages 513-42, November.
  14. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  15. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0169, National Bureau of Economic Research, Inc.
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Cited by:
  1. G. Marletto, 2006. "La politica dei trasporti come politica per l’innovazione: spunti da un approccio evolutivo," Working Paper CRENoS 200605, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, vol. 53.
  3. O. Carboni & G. Medda, 2007. "Government Size and the Composition of Public Spending in a Neoclassical Growth Model," Working Paper CRENoS 200701, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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