Forecasting inflation using the Phillips curve in inflation targeting countries
International Review of Applied Economics, 2019, vol. 33, issue 5, 601-623
This paper studies the forecasting ability of various Phillips curve specifications for 1 year ahead headline and underlying core inflation measures for three open currently inflation targeting (IT) countries: Sweden, Canada and New Zealand. The changes of the monetary policy regime in these countries are discussed for periods of fixed exchange rate regime, early years of IT and later periods in the light of inflation forecasting accuracy. The paper finds evidence that Phillips curve models can improve inflation forecasts against the random walk benchmark in the periods when the central bank is explicitly targeting the inflation. Yet, the results from earlier periods indicate heterogeneity in individual model performance across various econometric specifications and different sample periods.
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