Predicting Inflation: Does The Quantity Theory Help?

Lance J. Bachmeier and Norman R. Swanson ()

Economic Inquiry, 2005, vol. 43, issue 3, pages 570-585

Abstract: Various inflation forecasting models are compared for the period 1979--2003 using a simulated out-of-sample forecasting framework. Our findings are (1) M2 has marginal predictive content for inflation; (2) it is necessary to allow for the possibility that money, prices, and output are cointegrated; and (3) cointegration vector parameter estimation error is important when making out-of-sample forecasts. Consistent with previous work, we find a structural break in the early 1990s, but the break was easily detected and would not have affected out-of-sample inflation forecasts. Two Monte Carlo experiments that lend credence to our findings are also reported on.(JEL E31, C32) Copyright 2005, Oxford University Press.

JEL-codes: E31 C32 (search for similar items in EconPapers)
Date: 2005
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