Advanced Search
MyIDEAS: Login

Do Phillips curves conditionally help to forecast inflation?

Contents:

Author Info

  • Michael Dotsey
  • Shigeru Fujita
  • Tom Stark

Abstract

The Phillips curve has long been used as a foundation for forecasting inflation. Yet numerous studies indicate that over the past 20 years or so, inflation forecasts based on the Phillips curve generally do not predict inflation any better than a univariate forecasting model. In this paper, the authors take a deeper look at the forecasting ability of Phillips curves from both an unconditional and a conditional view. Namely, they use the test results developed by Giacomini and White (2006) to examine the forecasting ability of Phillips curve models. The authors' main results indicate that forecasts from their Phillips curve models are unconditionally inferior to those of their univariate forecasting models and sometimes the difference is statistically significant. However, the authors do find that conditioning on various measures of the state of the economy does at times improve the performance of the Phillips curve model in a statistically significant way. Of interest is that improvement is more likely to occur at longer forecasting horizons and over the sample period 1984Q1—2010Q3. Strikingly, the improvement is asymmetric — Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. It, therefore, appears that forecasters should not fully discount the inflation forecasts of Phillips curve-based models when the economy is weak.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-40.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-40.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedpwp:11-40

Contact details of provider:
Postal: 10 Independence Mall, Philadelphia, PA 19106-1574
Web page: http://www.philadelphiafed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.phil.frb.org/econ/wps/index.html

Related research

Keywords: Phillips curve ; Unemployment;

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Athanasios Orphanides & Simon van Norden, 2004. "The reliability of inflation forecasts based on output gap estimates in real time," Finance and Economics Discussion Series 2004-68, Board of Governors of the Federal Reserve System (U.S.).
  2. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
  3. Jeffrey C. Fuhrer & Giovanni P. Olivei, 2010. "The role of expectations and output in the inflation process: an empirical assessment," Public Policy Brief, Federal Reserve Bank of Boston.
  4. 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.
  5. Todd E. Clark & Michael W. McCracken, 2003. "The predictive content of the output gap for inflation : resolving in-sample and out-of-sample evidence," Research Working Paper RWP 03-06, Federal Reserve Bank of Kansas City.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Todd E.Clark & Taeyoung Doh, 2011. "A Bayesian evaluation of alternative models of trend inflation," Research Working Paper RWP 11-16, Federal Reserve Bank of Kansas City.
  2. In Choi & Seong Jin Hwang, 2012. "Forecasting Korean inflation," Working Papers 1202, Research Institute for Market Economy, Sogang University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:11-40. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.