IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Optimal univariate inflation forecasting with symmetric stable shocks

  • Prasad V. Bidarkota

    (School of Business, La Trobe University, Bundoora, Victoria 3083, Australia)

  • J. Huston McCulloch

    (Department of Economics, The Ohio State University, 410 Arps Hall, 1945 North High Street, Columbus, OH 43210, USA)

Monthly inflation in the United States indicates non-normality in the form of either occasional big shocks or marked changes in the level of the series. We develop a univariate state space model with symmetric stable shocks for this series. The non-Gaussian model is estimated by the Sorenson-Alspach filtering algorithm. Even after removing conditional heteroscedasticity, normality is rejected in favour of a stable distribution with exponent 1·83. Our model can be used for forecasting future inflation, and to simulate historical inflation forecasts conditional on the history of inflation. Relative to the Gaussian model, the stable model accounts for outliers and level shifts better, provides tighter estimates of trend inflation, and gives more realistic assessment of uncertainty during confusing episodes. © 1998 John Wiley & Sons, Ltd.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Supporting data files and programs
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 13 (1998)
Issue (Month): 6 ()
Pages: 659-670

in new window

Handle: RePEc:jae:japmet:v:13:y:1998:i:6:p:659-670
Contact details of provider: Web page:

Order Information: Web: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:13:y:1998:i:6:p:659-670. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.