Forecasting US Inflation in Real Time

Chad Fulton and Kirstin Hubrich
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Chad Fulton: https://www.federalreserve.gov/econres/chad-t-fulton.htm

No 2021-014, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We perform a real-time forecasting exercise for US inflation, investigating whether and how additional information--additional macroeconomic variables, expert judgment, or forecast combination--can improve forecast accuracy and robustness. In our analysis we consider the pre-pandemic period including the Global Financial Crisis and the following expansion--the longest on record--featuring unemployment that fell to a rate not seen for nearly sixty years. Distinguishing features of our study include the use of published Federal Reserve Board staff forecasts contained in Tealbooks and a focus on forecasting performance before, during, and after the Global Financial Crisis, with relevance also for the current crisis and beyond. We find that while simple models remain hard to beat, the additional information that we consider can improve forecasts, especially in the post-crisis period. Our results show that (1) forecast combination approaches improve forecast accuracy over simpler models and robustify against bad forecasts, a particularly relevant feature in the current environment; (2) aggregating forecasts of inflation components can improve performance compared to forecasting the aggregate directly; (3) judgmental forecasts, which likely incorporate larger and more timely datasets, provide improved forecasts at short horizons.

Keywords: Inflation; Survey forecasts; Forecast combination (search for similar items in EconPapers)
JEL-codes: C53 E30 E37 (search for similar items in EconPapers)
Pages: 32 p.
Date: 2021-03-04
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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https://www.federalreserve.gov/econres/feds/files/2021014pap.pdf (application/pdf)

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Journal Article: Forecasting US Inflation in Real Time (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-14

DOI: 10.17016/FEDS.2021.014

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