Simulating Inflation Forecasting in Real-Time: How Useful Is a Simple Phillips Curve in Germany, the UK, and the US?
IMF Working Papers, February 1, 2010
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- Simulating Inflation Forecasting in Real-Time: How Useful Is a Simple Phillips Curve in Germany, the UK, and the US?
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Bibliographic details
- Authors: Jens R Clausen, Bianca Clausen
- Published: February 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451963380.001
Summary and Research Design
- Purpose: Simulate out-of-sample inflation forecasting for Germany, the UK, and the US using output gaps estimated with unrevised real-time GDP data.
- Key methodological distinction: Uses real-time GDP datasets (including a novel real-time German GDP dataset) to mimic the information set available to a policymaker at a given point in time, acknowledging that GDP data are subject to sometimes substantial revisions.
- Comparative benchmark: AR(1) inflation forecast.
Main Findings
- Phillips curves based on ex post output gaps:
- Generally improve the accuracy of inflation forecasts compared to an AR(1) forecast.
- Phillips curves based on real-time output gaps:
- Often do not help forecasting inflation.
- Implication: Raises the question how operationally useful certain output gap estimates are for forecasting inflation.
Subject Areas and Keywords
- Subject: Economic forecasting, Estimation techniques, Inflation, Output gap, Potential output
- Keywords: GDP, output gap series, WP
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