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Robust estimation and inflation forecasting

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  • Param Silvapulle
  • Ramya Hewarathna

Abstract

This paper considers various models emerging from the Fisher effect and/or the term structure of interest rates for inflation forecasting. This paper, it is believed, makes a contribution to the literature on estimation of the models by using a procedure that is robust for non-normal errors, improving the efficiency of the estimates considerably. The Consumer Price Index series, 90 days and 180 days Australian bank-accepted bill rates, covering the sample period 1968Q1 to 1998Q4 were used in this study. Contrary to earlier findings, strong evidence was documented supporting the Fisher effect in the presence of a structural break with the break-point being at 1980Q1. The overall results suggest that the error correction model of the Fisher effect, the term structure of interest rates and short-run dynamics produce superior forecasts, in particular when the models were estimated using the robust method. These findings have important implications for economic policy analysis.

Suggested Citation

  • Param Silvapulle & Ramya Hewarathna, 2002. "Robust estimation and inflation forecasting," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2277-2282.
  • Handle: RePEc:taf:applec:v:34:y:2002:i:18:p:2277-2282 DOI: 10.1080/00036840210138446
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    References listed on IDEAS

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    1. Daniel Artana, Ricardo López Murphy, 1994. "Fiscal Decentralization: Some Lessons for Latin America," Working Papers 42, FIEL.
    2. Daniel Artana, Fernando Navajas, 1997. "Competencia desleal en el comercio minorista. Experiencia para el caso argentino," Working Papers 54, FIEL.
    3. D. Artana, M. Cristini, R. Moya, M. Panadeiros, 1997. "Modernización del Comercio Minorista en la Argentina," Working Papers 55, FIEL.
    4. Ricardo Paredes, 1996. "Mercado Laboral e Instituciones: Lecciones a partir del caso de Chile," Working Papers 50, FIEL.
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    Cited by:

    1. Keshab Bhattarai, 2008. "An empirical study of interest rate determination rules," Applied Financial Economics, Taylor & Francis Journals, vol. 18(4), pages 327-343.

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