Forecasting Inflation

James H. Stock and Mark W. Watson

No 7023, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates forecasts of U.S. inflation at the 12-month horizon. The starting point is the conventional unemployment rate Phillips curve, which is examined in a simulated out of sample forecasting framework. Inflation forecasts produced by the Phillips curve generally have been more accurate than forecasts based on other macroeconomic variables, including interest rates, money and commodity prices. These forecasts can however be improved upon using a generalized Phillips curve based on measures of real aggregate activity other than unemployment, especially a new index of aggregate activity based on 61 real economic indicators.

JEL-codes: E31 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
Date: 1999-03
Note: EFG ME
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Journal Article: Forecasting inflation (1999)
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