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Model Specification and Inflation Forecast Uncertainty

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Author Info

  • Gunnar Bårdsen

    ()
    (Department of Economics, Norwegian University of Science and Technology)

  • Eilev S. Jansen

    ()
    (Bank of Norway and Department of Economics, Norwegian University of Science and Technology)

  • Ragnar Nymoen

    ()
    (Department of Economics, University of Oslo)

Abstract

Three classes of inflation models are discussed: Standard Phillips curves, New Keynesian Phillips curves and Incomplete Competition models. Their relative merits in explaining and forecasting inflation are investigated theoretically and empirically. We establish that Standard Phillips-curve forecasts are robust to types of structural breaks that harm the Incomplete Competion model forecasts, but exaggerate forecast uncertainty in periods with no breaks. As the potential biases in after-break forecast errors for the Incomplete Competition model can be remedied by intercept corrections, it offers the best prospect of successful inflation forecasting.

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File URL: http://www.svt.ntnu.no/iso/WP/2002/13forecast.pdf
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Bibliographic Info

Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 1302.

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Length: 28 pages
Date of creation: 28 Apr 2000
Date of revision: 29 Jan 2002
Handle: RePEc:nst:samfok:1302

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Web page: http://www.svt.ntnu.no/iso/WP/wp.htm
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Related research

Keywords: monetary policy; inflation targeting; wages and prices; model specification; encompassing; model uncertainty; forecasting;

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References

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  1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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  4. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
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  9. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
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  13. �yvind Eitrheim & Eilev S. Jansen & Ragnar Nymoen, 2002. "Progress from forecast failure -- the Norwegian consumption function," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 40-64, June.
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  16. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December.
  17. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
  18. Dag Kolsrud & Ragnar Nymoen, 1998. "Unemployment and the open economy wage-price spiral," Journal of Economic Studies, Emerald Group Publishing, vol. 25(6), pages 450-467, October.
  19. repec:fth:louvco:9041 is not listed on IDEAS
  20. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
  21. Rodseth,A. & Nymoen,R., 1999. "Nordic wage formation and unemployment seven years later," Memorandum 10/1999, Oslo University, Department of Economics.
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Citations

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Cited by:
  1. Nymoen, Ragnar, 2005. "Evaluating a Central Bank’s Recent Forecast Failure," Memorandum 22/2005, Oslo University, Department of Economics.
  2. Ragnar Nymoen & Gunnar Bardsen & Eilev S. Jansen, 2004. "The empirical relevance of the New Keynesian Phillips curve," Econometric Society 2004 North American Winter Meetings 328, Econometric Society.
  3. Q. Farooq Akram & Ragnar Nymoen, 2006. "Model selection for monetary policy analysis – Importance of empirical validity," Working Paper 2006/13, Norges Bank.
  4. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2002. "The Empirical (ir)Relevance of the New Keynesian Phillips Curve," Working Paper Series 2102, Department of Economics, Norwegian University of Science and Technology.
  5. Bårdsen, Gunnar & Jansen, Eilev S. & Nymoen, Ragnar, 2003. "Testing the New Keynesian Phillips curve," Memorandum 18/2002, Oslo University, Department of Economics.

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