Modeling and Forecasting Inflation in Japan
IMF Working Papers, June 1, 2001
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- Modeling and Forecasting Inflation in Japan
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Bibliographic details
- Authors: Toshitaka Sekine
- Published: June 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850444.001
Summary and key findings
- This paper estimates an inflation function and forecasts one-year ahead inflation for Japan.
- Main findings:
- (i) markup relationships, excess money and the output gap are particularly relevant long-run determinants for an equilibrium correction model (EqCM) of inflation;
- (ii) with intercept corrections, one-year ahead inflation forecast performance of the EqCM is good; and
- (iii) forecast accuracy can be improved by combining forecasts of the EqCM with those made by rival models.
- The EqCM obtained would serve for structural model-based inflation forecasting.
- The paper highlights the importance of adjustment to a pure model-based forecast by utilizing information of alternative models.
- The methodology employed is applicable to a wider range of countries including some emerging market economies.
Methodology and applicability
- Model type: equilibrium correction model (EqCM) of inflation.
- Long-run determinants emphasized: markup relationships, excess money, output gap.
- Forecast horizon focused on: one-year ahead inflation.
- Suggested approach: combine EqCM forecasts with rival model forecasts to improve accuracy.
- Applicability: methodology can be applied to a wider range of countries, including some emerging market economies.
Policy and analytical implications
- Use structural EqCM frameworks for model-based inflation forecasting.
- Apply intercept corrections to improve one-year ahead forecast performance.
- Combine model forecasts (EqCM and rival models) to enhance forecast accuracy.
- Incorporate alternative-model information when adjusting pure model-based forecasts.
Subject areas and keywords
- Subject: Economic forecasting, Foreign exchange, Inflation, Oil prices, Output gap, Prices, Production, Purchasing power parity, Vector autoregression
- Keywords: forecast, inflation, inflation expectation, inflation function, inflation indicator, inflation process, Japan, Oil prices, Output gap, Purchasing power parity, random walk, random walk model, structural inflation, time series, time series technique, WP
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Content in this bundle
- Modeling and Forecasting Inflation in Japan - WP/01/82