# The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time

*Athanasios Orphanides* () and
*Simon van Norden* ()

*Journal of Money, Credit and Banking*, 2005, vol. 37, issue 3, 583-601

**Abstract:**
A stable predictive relationship between inflation and the output gap, often referred to as a Phillips curve, provides the basis for countercyclical monetary policy in many models. In this paper, we evaluate the usefulness of alternative univariate and multivariate estimates of the output gap for predicting inflation. Many of the ex post output gap measures we examine appear to be quite useful for predicting inflation. However, forecasts using real-time estimates of the same measures do not perform nearly as well. The relative usefulness of real-time output gap estimates diminishes further when compared to simple bivariate forecasting models which use past inflation and output growth. Forecast performance also appears to be unstable over time, with models often performing differently over periods of high and low inflation. These results call into question the practical usefulness of the output gap concept for forecasting inflation.

**Date:** 2005

**References:** Add references at CitEc

**Citations:** View citations in EconPapers (126) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

**Related works:**

Working Paper: The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time (2005)

Working Paper: The reliability of inflation forecasts based on output gap estimates in real time (2004)

Working Paper: The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time (2003)

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:mcb:jmoncb:v:37:y:2005:i:3:p:583-601

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by *Robert deYoung*, *Paul Evans*, *Pok-Sang Lam* and *Kenneth D. West*

More articles in Journal of Money, Credit and Banking from Blackwell Publishing

Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().