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Inflation forecasting and the distribution of price changes

Author

Listed:
  • Sartaj Rasool Rather

    (Madras School of Economics, Chennai-600025 INDIA)

  • Sunil Paul

    (Madras School of Economics, Chennai-600025 INDIA)

  • S. Raja Sethu Durai

    (Department of Economics, Pondicherry University, Puducherry-605014 INDIA)

Abstract

This study shows that replacing the traditional measure of asymmetry that is skewness in the inflation forecasting model with an alternative asymmetry measure that captures the joint influence of both skewness and variance on inflation significantly improves the forecast at various horizons. The empirical evidence suggests that it is more appropriate to use such measure of asymmetry in inflation forecast model as it has edge over simple measure of skewness in predicting inflation. These findings are consistent with the prediction of menu cost model that the variance of cross sectional distribution of relative price changes amplifies the impact of skewness on inflation.

Suggested Citation

  • Sartaj Rasool Rather & Sunil Paul & S. Raja Sethu Durai, 2015. "Inflation forecasting and the distribution of price changes," Economics Bulletin, AccessEcon, vol. 35(1), pages 226-232.
    • Handle: RePEc:ebl:ecbull:eb-14-00691
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    References listed on IDEAS

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    Cited by:

    1. Sartaj Rasool Rather, 2019. "Asymmetric impact of relative price shocks in presence of trend inflation," Applied Economics Letters, Taylor & Francis Journals, vol. 26(9), pages 755-758, May.
    2. Sartaj Rather, 2016. "Asymmetric Impact of Relative Price Shocks in Presence of Trend Inflation," Working Papers id:11477, eSocialSciences.

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    More about this item

    Keywords

    skewness; relative price changes; asymmetry; inflation forecasting;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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