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Simulating Inflation Forecasting in Real-Time

Simulating Inflation Forecasting in Real-Time
Author: Mr.Jens R. Clausen
Publisher: International Monetary Fund
Total Pages: 23
Release: 2010-02-01
Genre: Business & Economics
ISBN: 1451963386

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This paper simulates out-of-sample inflation forecasting for Germany, the UK, and the US. In contrast to other studies, we use output gaps estimated with unrevised real-time GDP data. This exercise assumes an information set similar to that available to a policymaker at a given point in time since GDP data is subject to sometimes substantial revisions. In addition to using real-time datasets for the UK and the US, we employ a dataset for real-time German GDP data not used before. We find that Phillips curves based on ex post output gaps generally improve the accuracy of inflation forecasts compared to an AR(1) forecast but that real-time output gaps often do not help forecasting inflation. This raises the question how operationally useful certain output gap estimates are for forecasting inflation.


Forecasting Inflation and Output

Forecasting Inflation and Output
Author: William T. Gavin
Publisher:
Total Pages:
Release: 2006
Genre:
ISBN:

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"Decision makers, both public and private, use forecasts of economic growth and inflation to make plans and implement policies. In many situations, reasonably good forecasts can be made with simple rules of thumb that are extrapolations of a single data series. In principle, information about other economic indicators should be useful in forecasting a particular series like inflation or output. Including too many variables makes a model unwieldy and not including enough can increase forecast error. A key problem is deciding which other series to include. Recently, studies have shown that Dynamic Factor Models (DFMs) may provide a general solution to this problem. The key is that these models use a large data set to extract a few common factors (thus, the term 'data-rich'). This paper uses a monthly DFM model to forecast inflation and output growth at horizons of 3, 12 and 24 months ahead. These forecasts are then compared to simple forecasting rules"--Federal Reserve Bank of St. Louis web site.


Inflation Expectations

Inflation Expectations
Author: Peter J. N. Sinclair
Publisher: Routledge
Total Pages: 402
Release: 2009-12-16
Genre: Business & Economics
ISBN: 1135179778

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Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.


The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time

The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time
Author: Athanasios Orphanides
Publisher:
Total Pages: 52
Release: 2005
Genre: Inflation (Finance)
ISBN:

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"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"--Abstract.


How to Improve Inflation Forecasting in Canada

How to Improve Inflation Forecasting in Canada
Author: Mr.Troy D Matheson
Publisher: International Monetary Fund
Total Pages: 22
Release: 2019-09-13
Genre: Business & Economics
ISBN: 1513514970

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Against the backdrop of an ongoing review of the inflation-targeting framework, this paper examines the real-time inflation forecasts of the Bank of Canada with the aim of identifying potential areas for improvement. Not surprisingly, the results show that errors in forecasting non-core inflation (commodity prices etc.) are found to be the largest contributors to overall inflation forecast errors. Perhaps more importantly, relatively small core inflation forecast errors appear to mask large and offsetting errors related to the output gap and the policy interest rate, partly reflecting a tendency to overestimate the neutral nominal policy rate in real time. Faced with these uncertainties, the Governing Council’s gradual approach to changing its policy settings appears to have served it well.


Estimates of Potential Output and the Neutral Rate for the U.S. Economy

Estimates of Potential Output and the Neutral Rate for the U.S. Economy
Author: Ali Alichi
Publisher: International Monetary Fund
Total Pages: 31
Release: 2018-07-06
Genre: Business & Economics
ISBN: 1484367766

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Estimates of potential output and the neutral short-term interest rate play important roles in policy making. However, such estimates are associated with significant uncertainty and subject to significant revisions. This paper extends the structural multivariate filter methodology by adding a monetary policy block, which allows estimating the neutral rate of interest for the U.S. economy. The addition of the monetary policy block further improves the reliability of the structural multivariate filter.


Inflation-Forecast Targeting

Inflation-Forecast Targeting
Author: Kevin Clinton
Publisher: International Monetary Fund
Total Pages: 56
Release: 2015-06-24
Genre: Business & Economics
ISBN: 1513557653

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Many central banks in emerging and advanced economies have adopted an inflation-forecast targeting (IFT) approach to monetary policy, in order to successfully establish a stable, low-inflation environment. To support policy making, each has developed a structured system of forecasting and policy analysis appropriate to its needs. A common component is a model-based forecast with an endogenous policy interest rate path. The approach is characterized, among other things, by transparent communications—some IFT central banks go so far as to publish their policy interest rate projection. Some elements of this regime, although a work still in progress, are worthy of consideration by central banks that have not yet officially adopted full-fledged inflation targeting.


Handbook of Economic Forecasting

Handbook of Economic Forecasting
Author: Graham Elliott
Publisher: Elsevier
Total Pages: 667
Release: 2013-08-23
Genre: Business & Economics
ISBN: 0444627405

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The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. Focuses on innovation in economic forecasting via industry applications Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications Makes details about economic forecasting accessible to scholars in fields outside economics