Forecasting UK Inflation: the Roles of Structural Breaks and Time Disaggregation

Jennifer Castle and David Hendry

No 309, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Structural models` inflation forecasts are often inferior to those of naive devices. This chapter theoretically and empirically assesses this for UK annual and quarterly inflation, using the theoretical framework in Clements and Hendry (1998, 1999). Forecasts from equilibrium-correction mechanisms, built by automatic model selection, are compared to various robust devices. Forecast-error taxonomies for aggregated and time-disaggregated information reveal that the impacts of structural breaks are identical between these, so no gain results, helping interpret the empirical findings. Forecast failures in structural models are driven by their deterministic terms, confirming location shifts as a pernicious cause thereof, and explaining the success of robust devices.

Keywords: Inflation Forecasting; Structural Breaks; Robust Forecasts; Time-disaggregation; Foreign-error Taxonomies (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Date: 2007-02-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-for
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:309

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