Simple Ways to Forecast Inflation: What Works Best?

There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. We generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various m...

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Bibliographic Details
Published in:Economic commentary (Cleveland) 2010-12 (2010-17), p.1-6
Main Authors: Meyer, Brent H, Pasaogullari, Mehmet
Format: Article
Language:English
Subjects:
Accuracy
Analysis
Consumer Price Index
Economic activity
Economic conditions
Economic forecasts
Forecasting
Forecasting techniques
Forecasts and trends
Inflation
Inflation (Finance)
Inflation rates
Methods
Noise
Phillips curve
Regression analysis
Statistics
Studies
Unemployment
Volatility
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Summary:There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. We generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to be helpful in predicting the course of inflation. Then we compare their forecast accuracy. We find that no single specification outperforms all others over all time periods. For example, the median and 16 percent trimmed-mean measures outperform all other specifications during the 1990s, and survey-based inflation expectations seem to do better during volatile periods.
ISSN:0428-1276
2163-3738
DOI:10.26509/frbc-ec-201017