Why Has U.S. Inflation Become Harder to Forecast?

No 12324, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Forecasts of the rate of price inflation play a central role in the formulation of monetary policy, and forecasting inflation is a key job for economists at the Federal Reserve Board. This paper examines whether this job has become harder and, to the extent that it has, what changes in the inflation process have made it so. The main finding is that the univariate inflation process is well described by an unobserved component trend-cycle model with stochastic volatility or, equivalently, an integrated moving average process with time-varying parameters; this model explains a variety of recent univariate inflation forecasting puzzles. It appears currently to be difficult for multivariate forecasts to improve on forecasts made using this time-varying univariate model.

JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for, nep-mac and nep-mon
Note: EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (42)

Published as Stock, James H. and Mark W. Watson. "Why Has U.S. Inflation Become Harder to Forecast?" Journal of Money, Credit and Banking 39, s1 (2007): 13 - 33.
Published as JAMES H. STOCK & MARK W. WATSON, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, vol 39(7), pages 1849-1849.
Published as JAMES H. STOCK & MARK W. WATSON, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, vol 39(7), pages 1849-1849.

Downloads: (external link)
http://www.nber.org/papers/w12324.pdf (application/pdf)

Related works:
Journal Article: Why Has U.S. Inflation Become Harder to Forecast? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:12324

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12324

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().