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Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?

Listed author(s):
  • Andrew Ang
  • Geert Bekaert
  • Min Wei

Surveys do! We examine the forecasting power of four alternative methods of forecasting U.S. inflation out-of-sample: time series ARIMA models; regressions using real activity measures motivated from the Phillips curve; term structure models that include linear, non-linear, and arbitrage-free specifications; and survey-based measures. We also investigate several optimal methods of combining forecasts. Our results show that surveys outperform the other forecasting methods and that the term structure specifications perform relatively poorly. We find little evidence that combining forecasts using means or medians, or using optimal weights with prior information produces superior forecasts to survey information alone. When combining forecasts, the data consistently places the highest weights on survey information.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11538.

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Date of creation: Aug 2005
Publication status: published as Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
Handle: RePEc:nbr:nberwo:11538
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