Forecasting Inflation with the Hybrid New Keynesian Phillips Curve: A Compact-Scale Global VAR Approach
Carlos A. Medel (cmedel@bcentral.cl)
MPRA Paper from University Library of Munich, Germany
Abstract:
In this article, it is analysed the multihorizon predictive power of the Hybrid New Keynesian Phillips Curve (HNKPC) making use of a compact-scale Global VAR for the headline inflation of six developed countries with different inflationary experiences; covering from 2000.1 until 2014.12. The key element of this article is the use of direct measures of inflation expectations--Consensus Economics--embedded in a Global VAR environment, i.e. modelling cross-country interactions. The Global VAR point forecast is evaluated using the Mean Squared Forecast Error (MSFE) statistic and statistically compared with several benchmarks. These belong to traditional statistical modelling, such as autoregressions (AR), the exponential smoothing model (ES), and the random walk model (RW). One last economics-based benchmark is the closed economy univariate HNKPC. The results indicate that the Global VAR is a valid forecasting procedure especially for the short-run. The most accurate forecasts, however, are obtained with the AR and especially with the univariate HNKPC. In the long-run, the ES model also appears as a better alternative rather than the RW. The MSPE is obviously affected by the unanticipated effects of the financial crisis started in 2008. So, when considering an evaluation sample just before the crisis, the GVAR also appears as a valid alternative in the long-run. The most robust forecasting devices across countries and horizons result in the univariate HNKPC, giving a role for economic fundamentals when forecasting inflation.
Keywords: New Keynesian Phillips Curve; inflation forecasts; out-of-sample comparisons; survey data; Global VAR; time-series models (search for similar items in EconPapers)
JEL-codes: C22 C26 C53 E31 E37 E47 (search for similar items in EconPapers)
Date: 2015-10-05
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/67081/1/MPRA_paper_67081.pdf original version (application/pdf)
Related works:
Working Paper: Forecasting Inflation with the Hybrid New Keynesian Phillips Curve: A Compact-Scale Global VAR Approach (2016) 
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:pra:mprapa:67081
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter (winter@lmu.de).