Tests of the Specification and Predictive Accuracy of Nonnested Models of Inflation

David J Stockton and Charles S Struckmeyer

The Review of Economics and Statistics, 1989, vol. 71, issue 2, 275-83

Abstract: The recent volatility of inflation has provided considerable data to distinguish among competing theories of inflation. The key competing models are the expectations-augmented Phillips curve, a monetarist equation, and the rational expectations model. This paper replicates the results of earlier studies and tests their relative performance using nonnested hypothesis tests. In addition, the forecast accuracy of each of the alternative specification is evaluated using the methodology developed by Fair (1984). This method seeks to identify forecast uncertainty arising from the model's error term, coefficient estimates, exogenous variable forecasts, and possible misspecification. Copyright 1989 by MIT Press.

Date: 1989
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