Regime-Switching Models for Estimating Inflation Uncertainty

Jeremy J. Nalewaik

No 2015-93, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper constructs regime-switching models for estimating the probability of inflation returning to its relatively high levels of variability and persistence in the 1970s and 1980s. Forecasts and probabilities of extreme events from the models are evaluated against comparable estimates from other statistical models, from surveys, and from financial markets. The paper then uses the models to construct prediction intervals around Federal Reserve Board staff forecasts of PCE price inflation, combining the recent non-parametric forecast error distribution with parametric information from the model. The outer tails of the prediction intervals depend importantly on the probability inflation is in its high-variance, high-persistence regime.

Keywords: Inflation; Markov-Switching; Uncertainty (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-09-01
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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http://dx.doi.org/10.17016/FEDS.2015.093 http://dx.doi.org/10.17016/FEDS.2015.093 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-93

DOI: 10.17016/FEDS.2015.093

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