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Evaluating alternative models of trend inflation

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  • Clark, Todd E.
  • Doh, Taeyoung

Abstract

With the concept of trend inflation now being widely understood to be important to the accuracy of longer-term inflation forecasts, this paper assesses alternative models of trend inflation. Reflecting the models which are common in reduced-form inflation modeling and forecasting, we specify a range of models of inflation that incorporate different trend specifications. We compare the models on the basis of their accuracies in out-of-sample forecasting, both point and density. Our results show that it is difficult to say that any one model of trend inflation is the best. Several different trend specifications seem to be about equally accurate, and the relative accuracy is somewhat prone to instabilities over time.

Suggested Citation

  • Clark, Todd E. & Doh, Taeyoung, 2014. "Evaluating alternative models of trend inflation," International Journal of Forecasting, Elsevier, vol. 30(3), pages 426-448.
  • Handle: RePEc:eee:intfor:v:30:y:2014:i:3:p:426-448
    DOI: 10.1016/j.ijforecast.2013.11.005
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    Keywords

    Forecasting; Prediction; Model evaluation;

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