Has U.S. Inflation Really Become Harder to Forecast?
Recently Stock and Watson (2007) showed that since the mid-1980s it has been hard for backward-looking Phillips curve models to improve on simple univariate models in forecasting U.S. inflation. While this indeed is the case when the benchmark is a causal autoregression, little change in forecast accuracy is detected when a noncausal autoregression is taken as the benchmark. In this note, we argue that a noncausal autoregression indeed provides a better characterization of U.S. inflation dynamics than the conventional causal autoregression and it is, therefore, the appropriate univariate benchmark model.
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- Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2012.
"Optimal forecasting of noncausal autoregressive time series,"
International Journal of Forecasting,
Elsevier, vol. 28(3), pages 623-631.
- Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2010. "Optimal Forecasting of Noncausal Autoregressive Time Series," MPRA Paper 23648, University Library of Munich, Germany.
- James H. Stock & Mark W. Watson, 2006.
"Why Has U.S. Inflation Become Harder to Forecast?,"
NBER Working Papers
12324, National Bureau of Economic Research, Inc.
- 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.
- Lanne, Markku & Saikkonen, Pentti, 2008.
"Modeling Expectations with Noncausal Autoregressions,"
8411, University Library of Munich, Germany.
- Markku Lanne & Pentti Saikkonen, 2008. "Modeling Expectations with Noncausal Autoregressions," Economics Working Papers ECO2008/20, European University Institute.
- Lanne, Markku & Luoma, Arto & Luoto, Jani, 2009.
"Bayesian Model Selection and Forecasting in Noncausal Autoregressive Models,"
23646, University Library of Munich, Germany.
- Markku Lanne & Arto Luoma & Jani Luoto, 2012. "Bayesian Model Selection And Forecasting In Noncausal Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 812-830, 08.
- Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
- Breid, F. Jay & Davis, Richard A. & Lh, Keh-Shin & Rosenblatt, Murray, 1991. "Maximum likelihood estimation for noncausal autoregressive processes," Journal of Multivariate Analysis, Elsevier, vol. 36(2), pages 175-198, February.
- Lanne, Markku & Saikkonen, Pentti, 2010.
"Noncausal autoregressions for economic time series,"
32943, University Library of Munich, Germany.
- Lanne Markku & Saikkonen Pentti, 2011. "Noncausal Autoregressions for Economic Time Series," Journal of Time Series Econometrics, De Gruyter, vol. 3(3), pages 1-32, October.
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