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Forecasting inflation

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  • Stock, James H.
  • Watson, Mark W.

Abstract

This paper investigates forecasts of U.S. inflation at the 12-month horizon. The starting point is the conventional unemployment rate Phillips curve, which is examined in a simulated out of sample forecasting framework. Inflation forecasts produced by the Phillips curve generally have been more accurate than forecasts based on other macroeconomic variables, including interest rates, money and commodity prices. These forecasts can however be improved upon using a generalized Phillips curve based on measures of real aggregate activity other than unemployment, especially a new index of aggregate activity based on 61 real economic indicators.
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Suggested Citation

  • Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
  • Handle: RePEc:eee:moneco:v:44:y:1999:i:2:p:293-335
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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

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