EconPapers    
Economics at your fingertips  
 

Revisiting the forecasting accuracy of Phillips curve: The role of oil price

Afees Salisu (), Idris Ademuyiwa and Kazeem Isah ()

Energy Economics, 2018, vol. 70, issue C, 334-356

Abstract: In this paper, we propose a revision to the traditional (demand side) Phillips curve to capture the supply (cost-push) side of inflation. We adopt the Westerlund and Narayan [WN] (2015) approach which accounts for persistence, endogeneity and conditional heteroscedasticity effects in the predictive regression model. In addition, following the approach of Salisu and Isah (2018), we extend the oil-based bivariate framework of WN (2015) to a multi-predictor set-up in order to augment the traditional Phillips curve-based inflation model with the proposed cost-push factor. Using the OECD countries, we demonstrate that the forecast performance of the traditional Phillips curve tends to improve when it is augmented with oil price both for the in-sample and out-of-sample forecasts. Contrary to the prominent findings in the literature, the augmented Phillips curve model outperforms the first order autoregressive model. Our results are robust to alternative measures of inflation rate and different forecast horizons.

Keywords: OECD countries; Phillips curve; Oil price; Inflation forecasts; Forecast evaluation (search for similar items in EconPapers)
JEL-codes: C53 E31 E37 Q41 Q47 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988318300264
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Revisiting the forecasting accuracy of Phillips curve: the role of oil price (2017) Downloads
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:eee:eneeco:v:70:y:2018:i:c:p:334-356

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-22
Handle: RePEc:eee:eneeco:v:70:y:2018:i:c:p:334-356