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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)

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

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  22. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December. [Downloadable!] (restricted)
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  23. Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895.
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  25. Bardsen, Gunnar & Klovland, Jan Tore, 2000. " Shaken or Stirred? Financial Deregulation and the Monetary Transmission Mechanism in Norway," Scandinavian Journal of Economics, Blackwell Publishing, vol. 102(4), pages 563-83, December. [Downloadable!] (restricted)
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  26. 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. [Downloadable!] (restricted)
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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. 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. [Downloadable!]
  2. Q. Farooq Akram & Ragnar Nymoen, 2006. "Model selection for monetary policy analysis – Importance of empirical validity," Working Paper 2006/13, Norges Bank. [Downloadable!]
  3. Nymoen, Ragnar, 2005. "Evaluating a Central Bank’s Recent Forecast Failure," Memorandum 22/2005, Oslo University, Department of Economics. [Downloadable!]
  4. 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. [Downloadable!]
  5. Bårdsen, Gunnar & Jansen, Eilev S. & Nymoen, Ragnar, 2003. "Testing the New Keynesian Phillips curve," Memorandum 18/2002, Oslo University, Department of Economics. [Downloadable!]
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This page was last updated on 2009-11-30.

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