A stable predictive relationship between inflation and the output gap, often referred to as a Phillips curve, provides the basis for empirical formulations of countercyclical monetary policy in many models. In this paper, we provide an empirical evaluation of the usefulness of alternative univariate and multivariate estimates of the output gap for predicting inflation. In-sample analysis based on ex post output gap measures suggests that many of the alternative estimates we examine appear to be quite useful for predicting inflation. However, examination of out-of-sample forecasts using real-time estimates of the same measures suggests that this predictive ability is mostly illusory. We find that the usefulness of output gaps as predictors of inflation has been severely overstated and that real-time forecasts using the output gap are often less accurate than forecasts that abstract from the output gap concept altogether.
Dans ce papier, on jauge l'utilité de plusieurs estimations (univariées autant que multivariées) de l'écart de production pour prévoir le taux d'inflation. Une analyse ex post suggère que plusieurs de ces estimations aident à prédire l'inflation. Néanmoins, les erreurs de prédictions hors de l'enchantillon qui se sont construites avec les écarts de production estimés en temps réel indiquent que cette amélioration de prédiction est illusoire. On trouve que l'utilité des écarts de production pour prédire l'inflation a été exagérée et que les prédictions faites avec l'écart de production sont souvent moins précises que celles qui ignorent le concept d'un écart de production.
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Find related papers by JEL classification: E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
James H. Stock & Mark W. Watson, 1999.
"Forecasting Inflation,"
NBER Working Papers
7023, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Lawrence J. Christiano & Terry J. Fitzgerald, 1999.
"The Band Pass Filter,"
NBER Working Papers
7257, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Lawrence J. Christiano & Terry J. Fitzgerald, 1999.
"The Band pass filter,"
Working Paper
9906, Federal Reserve Bank of Cleveland.
[Downloadable!]
Lawrence J. Christiano & Terry J. Fitzgerald, 2003.
"The Band Pass Filter,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
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