Forecasting Inflation: Phillips Curve Effects on Services Price Measures

Ellis Tallman and Saeed Zaman

No 1519, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: We estimate an empirical model of inflation that exploits a Phillips curve relationship between a measure of unemployment and a subaggregate measure of inflation (services). We generate an aggregate inflation forecast from forecasts of the goods subcomponent separate from the services subcomponent, and compare the aggregated forecast to the leading time-series univariate and standard Phillips curve forecasting models. Our results indicate notable improvements in forecasting accuracy statistics for models that exploit relationships between services inflation and the unemployment rate. In addition, models of services inflation using the short-term unemployment rate (less than 27 weeks) as the real economic indicator display additional modest forecast accuracy improvements.

Keywords: Inflation forecasting; Phillips curve; disaggregated inflation forecasting models; trend-cycle model (search for similar items in EconPapers)
JEL-codes: C22 C53 E31 E37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-10-14
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Forecasting inflation: Phillips curve effects on services price measures (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1519

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DOI: 10.26509/frbc-wp-201519

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