The reliability of inflation forecasts based on output gap estimates in real time
By: Athanasios Orphanides and Simon van Norden.
Contributors: Van Norden, Simon.
Series: Finance and economics discussion series ;; 2004-68; Finance and economics discussion series (Online) ;; 2004-68.
Publisher: Federal Reserve Board
Published: 2004
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "A stable predictive relationship between inflation and the output gap, often referred to as a Phillips curve, provides the basis for countercyclical monetary policy in many models.  In this paper, we evaluate the usefulness of alternative univariate and multivariate estimates of the output gap for predicting inflation.  Many of the ex post output gap measures we examine appear to be quite useful for predicting inflation.  However, forecasts using real-time estimates of the same measures do not perform nearly as well.  The relative usefulness of real-time output gap estimates diminishes further when compared to simple bivariate forecasting models which use past inflation and output growth.  Forecast performance also appears to be unstable over time, with models often performing differently over periods of high and low inflation.  These results call into question the practical usefulness of the output gap concept for forecasting inflation"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/4/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.