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Assessing the ability of output gap estimates to forecast inflation in emerging countries

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  • Nwabisa Florence Ndzama

    (Corvinus University of Budapest, Budapest, Hungary)

Abstract

We find that, while different models used to estimate the output gap in five major emerging economies show similar trends over time, they lead to different conclusions about how well the output gap can predict inflation. This suggests that the choice of model can significantly impact the conclusions drawn about the relationship between the output gap and inflation. The multivariate Hodrick–Prescott filter and the structural vector autoregressive model produce the smallest forecast errors in most cases among the four output gap models considered. We further find some indications of a better inflation forecasting ability of the output gap in countries with inflation targeting, suggesting that the improved transparency related to inflation targeting might support the inflation forecasting process.

Suggested Citation

  • Nwabisa Florence Ndzama, 2025. "Assessing the ability of output gap estimates to forecast inflation in emerging countries," Russian Journal of Economics, ARPHA Platform, vol. 11(2), pages 144-167, June.
    • Handle: RePEc:arh:jrujec:v:11:y:2025:i:2:p:144-167
    DOI: 10.32609/j.ruje.11.126000
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    More about this item

    Keywords

    Phillips curve output gap inflation forecasts emerging economies;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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