Forecasting Inflation Using Dynamic Model Averaging
AbstractThere is a large literature on forecasting inflation using the generalized Phillips curve (i.e. using forecasting models where inflation depends on past inflation, the unemployment rate and other predictors). The present paper extends this literature through the use of econometric methods which incorporate dynamic model averaging. These not only allow for coefficients to change over time (i.e. the marginal effect of a predictor for inflation can change), but also allows for the entire forecasting model to change over time (i.e. different sets of predictors can be relevant at different points in time). In an empirical exercise involving quarterly US inflation, we fi nd that dynamic model averaging leads to substantial forecasting improvements over simple benchmark approaches (e.g. random walk or recursive OLS forecasts) and more sophisticated approaches such as those using time varying coefficient models.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 34_09.
Date of creation: Jan 2009
Date of revision: Jan 2009
Option Pricing; Modular Neural Networks; Non-parametric Methods;
Other versions of this item:
- Gary Koop & Dimitris Korobilis, 2012. "Forecasting Inflation Using Dynamic Model Averaging," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 867-886, 08.
- Koop, Gary & Korobilis, Dimitris, 2010. "Forecasting Inflation Using Dynamic Model Averaging," SIRE Discussion Papers 2010-113, Scottish Institute for Research in Economics (SIRE).
- Koop, Gary & Korobilis, Dimitris, 2011. "Forecasting Inflation Using Dynamic Model Averaging," SIRE Discussion Papers 2011-40, Scottish Institute for Research in Economics (SIRE).
- Gary Koop & Dimitris Korobilis, 2011. "Forecasting Inflation Using Dynamic Model Averaging," Working Papers 1119, University of Strathclyde Business School, Department of Economics.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-14 (All new papers)
- NEP-CBA-2009-11-14 (Central Banking)
- NEP-CMP-2009-11-14 (Computational Economics)
- NEP-ECM-2009-11-14 (Econometrics)
- NEP-FOR-2009-11-14 (Forecasting)
- NEP-MON-2009-11-14 (Monetary Economics)
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