Comparison of Selected Simple Models of Inflation in the Czech Economy

Martin Melecký

Czech Journal of Economics and Finance (Finance a uver), 2001, vol. 51, issue 5, 279-297

Abstract: This paper begins with a description of simple select models of inflation and their ability to fit the data. The paper in turn measures the stability of particular parsimonious models. One-step forecast tests are applied, which establish the instability of the money demand model compared with other models, despite its ability to fit the data nearly as well as the P-star model. Further, the forecasting performances of the selected parsimonious models are analyzed, though only the performance of one-step forecasts are fully treated given the insufficient descriptive ability of the AR processes of explanatory variables. As a measure of forecast ability, the author employs U-statistic, RMSE, and MAE tests. The above statistics assign the best-forecast performance to the modified version of the P-star model of inflation for a small, open economy.

Keywords: inflation; traditional monetary model; Phillips model; Portfolio model; P-star model; forecasting performance (search for similar items in EconPapers)
JEL-codes: C22 E31 E37 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:51:y:2001:i:4:p:279-297

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