Modeling and Forecasting Inflation in Japan

Toshitaka Sekine

No 2001/082, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates an inflation function and forecasts one-year ahead inflation for Japan. It finds that (i) markup relationships, excess money and the output gap are particularly relevant long-run determinants for an equilibrium correction model (EqCM) of inflation; (ii) with intercept corrections, one-year ahead inflation forecast performance of the EqCM is good; and (iii) forecast accuracy can be improved by combining forecasts of the EqCM with those made by rival models. The EqCM obtained would serve for structural model-based inflation forecasting. It also highlights the importance of adjustment to a pure model-based forecast by utilizing information of alternative models. The methodology employed is applicable to a wider range of countries including some emerging market economies.

Keywords: WP; random walk; time series; inflation; forecast; Japan; inflation indicator; time series technique; inflation function; random walk model; inflation expectation; inflation process; structural inflation; Output gap; Oil prices; Purchasing power parity (search for similar items in EconPapers)
Pages: 35
Date: 2001-06-01
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Citations: View citations in EconPapers (30)

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