Phillips curve forecasting in a small open economy

Troy Matheson ()

No DP2006/01, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: Stock and Watson (1999) show that the Phillips curve is a good forecasting tool in the United States. We assess whether this good performance extends to two small open economies, with relatively large tradable sectors. Using data for Australia and New Zealand, we find that the open economy Phillips curve performs poorly relative to a univariate autoregressive benchmark. However, its performance improves markedly when sectoral Phillips curves are used which model the tradable and non-tradable sectors separately. Combining forecasts from these sectoral models is much better than obtaining forecasts from a Phillips curve estimated on aggregate data. We also find that a diffusion index that combines a large number of indicators of real economic activity provides better forecasts of non-tradable inflation than more conventional measures of real demand, thus supporting Stock and Watson's (1999) findings for the United States.

JEL-codes: C53 E31 (search for similar items in EconPapers)
Pages: 20 p.
Date: 2006-02
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.rbnz.govt.nz/-/media/ReserveBank/Files/ ... ers/2006/dp06-01.pdf

Related works:
Journal Article: Phillips curve forecasting in a small open economy (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2006/01

Access Statistics for this paper

More papers in Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Reserve Bank of New Zealand Knowledge Centre ().