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Global inflation forecasts

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  • Jonathan Kearns

Abstract

Inflation co-moves across countries and several papers have shown that lags of this common inflation can help to forecast country inflation. This paper constructs forecasts of common (or 'global') inflation using survey forecasts of country inflation. These forecasts of global inflation have predictive power for global inflation at a medium horizon (12 months) but not at a longer horizon. Global inflation forecasts, and forecast errors, are correlated with survey forecasts and errors of oil and food prices, and global GDP growth, but not financial variables. For some countries, forecasts of global inflation improve the accuracy of forecasting regressions that include survey forecasts of country inflation. In-sample fit and out-of-sample forecasting exercises suggest that forecasts of global inflation generally contain more information for forecasting country inflation than do lags of global inflation. However, for most countries, lagged or forecast global inflation does not improve the accuracy of survey forecasts of country inflation. Whatever information global inflation may include about country inflation, for most countries it seems that survey forecasts of country inflation have historically already incorporated that information.

Suggested Citation

  • Jonathan Kearns, 2016. "Global inflation forecasts," BIS Working Papers 582, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:582
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    References listed on IDEAS

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    1. Carlos A. Medel & Michael Pedersen & Pablo M. Pincheira, 2016. "The Elusive Predictive Ability of Global Inflation," International Finance, Wiley Blackwell, vol. 19(2), pages 120-146, June.
    2. Matteo Ciccarelli & Benoît Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
    3. Nigel Pain & Isabell Koske & Marte Sollie, 2008. "Globalisation and OECD consumer price inflation," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-32.
    4. Henriksen, Espen & Kydland, Finn E. & Šustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 613-631.
    5. Mikolajun, Irena & Lodge, David, 2016. "Advanced economy inflation: the role of global factors," Working Paper Series 1948, European Central Bank.
    6. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-162, April.
    7. repec:hrv:faseco:30780147 is not listed on IDEAS
    8. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    9. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2010. "Some Simple Tests of the Globalization and Inflation Hypothesis," International Finance, Wiley Blackwell, vol. 13(3), pages 343-375, Winter.
    10. Duncan, Roberto & Martinez-Garcia, Enrique, 2015. "Forecasting local inflation with global inflation: when economic theory meets the facts," Globalization Institute Working Papers 235, Federal Reserve Bank of Dallas.
    11. Gita Gopinath, 2015. "The International Price System," NBER Working Papers 21646, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ryan Niladri Banerjee & Aaron Mehrotra, 2018. "Deflation expectations," BIS Working Papers 699, Bank for International Settlements.
    2. Karolina Tura-Gawron & Maria Siranova & Karol Fisikowski, 2018. "ARE CONSUMER INFLATION EXPECTATIONS AN INTERNATIONAL PHENOMENON? Results of spatial panel regressions models," GUT FME Working Paper Series A 50, Faculty of Management and Economics, Gdansk University of Technology.

    More about this item

    Keywords

    Global inflation; inflation forecasts; survey forecasts;

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