The role of commodity prices in forecasting U.S. core inflation
Nikolay Gospodinov ()
No 2016-5, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta
This note documents a curious finding about the substantial forecast ability of a simple aggregator of three commodity futures prices for U.S. core inflation. The proposed aggregator reduces the out-of-sample root mean squared error for 12-month-ahead inflation forecasts of the benchmark AR(1) model by 28 percent (20 percent) for the PCE (CPI) measure of core inflation. To avoid obfuscation of the sources of forecast ability, the model is intentionally kept simple, although extensions for improving and increasing the robustness of the forecast procedure are also discussed.
Keywords: core inflation; commodity futures; convenience yields; forecasting (search for similar items in EconPapers)
JEL-codes: C53 E37 G12 (search for similar items in EconPapers)
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