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G-7 INFLATION FORECASTS: RANDOM WALK, PHILLIPS CURVE OR WHAT ELSE?

Published online by Cambridge University Press:  18 January 2007

FABIO CANOVA
FABIO CANOVA
Affiliation:
ICREA, Universitat Pompeu Fabra and CEPR
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Abstract

This paper compares the forecasting performance of some leading models of inflation for G-7 countries. We show that bivariate and trivariate models suggested by economic theory or statistical analysis are not much better than univariate ones. Phillips curve specifications fit well into this class. Improvements in both the MSE of the forecasts and turning point prediction are obtained with time-varying coefficients models, which exploit international interdependencies. The performance of the latter class of models is stable throughout the 1990s.

Keywords

G-7 CountriesInflationPanel VAR ModelsMarkov Chain Monte Carlo Methods

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Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 11 , Issue 1 , February 2007 , pp. 1 - 30
Copyright
© 2007 Cambridge University Press

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