A New Model of Trend Inflation
This article introduces a new model of trend inflation. In contrast to many earlier approaches, which allow for trend inflation to evolve according to a random walk, ours is a bounded model which ensures that trend inflation is constrained to lie in an interval. The bounds of this interval can either be fixed or estimated from the data. Our model also allows for a time-varying degree of persistence in the transitory component of inflation. In an empirical exercise with CPI inflation, we find the model to work well, yielding more sensible measures of trend inflation and forecasting better than popular alternatives such as the unobserved components stochastic volatility model. This article has supplementary materials online.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 31 (2013)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://www.tandfonline.com/UBES20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/UBES20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Geweke, 2010. "Complete and Incomplete Econometric Models," Economics Books, Princeton University Press, edition 1, number 9218.
- Koop, Gary & Potter, Simon M., 2011. "Time varying VARs with inequality restrictions," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1126-1138, July.
- James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
- Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2010.
"Inflation-Gap Persistence in the US,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(1), pages 43-69, January.
- Todd E. Clark & Taeyoung Doh, 2011.
"A Bayesian evaluation of alternative models of trend inflation,"
Research Working Paper
RWP 11-16, Federal Reserve Bank of Kansas City.
- Todd E. Clark & Taeyoung Doh, 2011. "A Bayesian evaluation of alternative models of trend inflation," Working Paper 1134, Federal Reserve Bank of Cleveland.
- Todd E. Clark & Troy A. Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
- James H. Stock & Mark W. Watson, 2007.
"Why Has U.S. Inflation Become Harder to Forecast?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
- Chan, Joshua & Strachan, Rodney, 2012.
"Estimation in Non-Linear Non-Gaussian State Space Models with Precision-Based Methods,"
39360, University Library of Munich, Germany.
- Joshua Chan & Rodney Strachan, 2012. "Estimation in Non-Linear Non-Gaussian State Space Models with Precision-Based Methods," CAMA Working Papers 2012-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Timothy Cogley & Argia M. Sbordone, 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve," American Economic Review, American Economic Association, vol. 98(5), pages 2101-26, December.
- Peter N. Ireland, 2007.
"Changes in the Federal Reserve's Inflation Target: Causes and Consequences,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(8), pages 1851-1882, December.
- Peter N. Ireland, 2005. "Changes in the Federal Reserve's inflation target: causes and consequences," Working Papers 05-13, Federal Reserve Bank of Boston.
- Peter N. Ireland, 2006. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," NBER Working Papers 12492, National Bureau of Economic Research, Inc.
- Peter N. Ireland, 2005. "Changes in the Federal Reserve’s Inflation Target: Causes and Consequences," Boston College Working Papers in Economics 607, Boston College Department of Economics.
- Frank Smets & Raf Wouters, 2003.
"An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area,"
Journal of the European Economic Association,
MIT Press, vol. 1(5), pages 1123-1175, 09.
- Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
- Gary Koop & Simon M. Potter, 2007. "Estimation and Forecasting in Models with Multiple Breaks," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 763-789.
- John C. Williams, 2009. "The risk of deflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar27.
This item is featured on the following reading lists or Wikipedia pages:
- A New Model of Trend Inflation (J Business & Econ Statistics 2013) in ReplicationWiki
When requesting a correction, please mention this item's handle: RePEc:taf:jnlbes:v:31:y:2013:i:1:p:94-106. 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: (Michael McNulty)
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.