IMF Working Papers

Forecasting Inflation in Chile Using State-Space and Regime-Switching Models

Author/Editor:

Francisco d Nadal De Simone

Publication Date:

October 1, 2000

Electronic Access:

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Summary:

The paper estimates two time-varying parameter models of Chilean inflation: a Phillips curve model and a small open economy model. Their out-of-sample forecasts are compared with those of simple Box-Jenkins models. The main findings are; forecasts that include the pre-announced inflation target as a regressor are relatively better; the Phillips curve model outperforms the small open economy model in out-of-sample forecasts; and although Box-Jenkins models outperform the two models for short-term out-of-sample forecasts, their superiority deteriorates in longer forecasts. Adding a Markov-switching process to the models does not explain much of the conditional variance of the forecast errors.

Series:

Working Paper No. 2000/162

Subject:

Economic forecasting Inflation Inflation targeting Monetary policy Monetary policy frameworks Output gap Prices Production