Forecasting Inflation in Chile Using State-Space and Regime-Switching Models

Francisco Nadal De Simone

No 2000/162, IMF Working Papers from International Monetary Fund

Abstract: The paper estimates two time-varying parameter models of Chilean inflation: a Phillips curve model and a small open economy model. Their out-of-sample forecasts are compared with those of simple Box-Jenkins models. The main findings are; forecasts that include the pre-announced inflation target as a regressor are relatively better; the Phillips curve model outperforms the small open economy model in out-of-sample forecasts; and although Box-Jenkins models outperform the two models for short-term out-of-sample forecasts, their superiority deteriorates in longer forecasts. Adding a Markov-switching process to the models does not explain much of the conditional variance of the forecast errors.

Keywords: WP; Phillips curve; open economy; inflation forecasting; state-space models; Markov-switching; Phillips curve model; open economy model; inflation target; model of inflation; time series; Inflation targeting; Inflation; Output gap; Monetary policy frameworks (search for similar items in EconPapers)
Pages: 54
Date: 2000-10-01
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Citations: View citations in EconPapers (12)

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