Do macro variables, asset markets, or surveys forecast inflation better?

Journal of Monetary Economics

Volumn 54, Issue 4, 2007, Pages 1163-1212

  Ang, Andrew ^a   Bekaert, Geert ^a   Wei, Min ^b  

^a The Sanford C Bernstein Co Center for Leadership and Ethics   (United States)

^b FEDERAL RESERVE BOARD   (United States)

Author keywords

ARIMA; Forecasting; Livingston; Phillips curve; SPF; Term structure models

Indexed keywords

EID: 34247346581     PISSN: 03043932     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jmoneco.2006.04.006     Document Type: Article

References (82)

1. Ang A., and Bekaert G. Regime switches in interest rates. Journal of Business and Economic Statistics 20 (2006) 163-182
2. Ang, A., Piazzesi, M., Wei, M., 2006a. What does the yield curve tell us about GDP growth? Journal of Econometrics 131, 359-403.
3. Ang, A., Bekaert, G., Wei, M., 2006b. The term structure of real rates and expected inflation. Working paper, Columbia University.
4. Atkeson A., and Ohanian L.E. Are Phillips curves useful for forecasting inflation?. Federal Reserve Bank of Minneapolis Quarterly Review 25 (2001) 2-11
5. Bai J., and Ng S. A panic attack on unit roots and cointegration. Econometrica 72 (2004) 1127-1177
6. Bates J.M., and Granger C.W.J. The combination of forecasts. Operations Research Quarterly 20 (1969) 451-468
7. Bekaert G., Hodrick R.J., and Marshall D. Peso problem explanations for term structure anomalies. Journal of Monetary Economics 48 (2001) 241-270
8. Bekaert, G., Cho, S., Moreno, A., 2005. New Keynesian macroeconomics and the term structure. Working paper, Columbia University.
9. Bernanke B.S., and Boivin J. Monetary policy in a data-rich environment. Journal of Monetary Economics 50 (2003) 525-546
10. Bernanke B.S., Boivin J., and Eliasz P. Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach. Quarterly Journal of Economics 120 (2005) 387-422
11. Boivin, J., Ng, S., 2006. Are more data always better for factor analysis? Journal of Econometrics, forthcoming.
12. Brave S., and Fisher J.D.M. In search of a robust inflation forecast. Federal Reserve Bank of Chicago Economic Perspectives 28 (2004) 12-30
13. Brennan M.J., Wang A.W., and Xia Y. Estimation and test of a simple model of intertemporal capital asset pricing. Journal of Finance 59 (2004) 1743-1775
14. Bryan M.F., and Cecchetti S.G. The consumer price index as a measure of inflation. Economic Review of the Federal Reserve Bank of Cleveland 29 (1993) 15-24
15. Campbell, S.D., 2004. Volatility, predictability and uncertainty in the great moderation: evidence from the survey of professional forecasters. Working paper, Federal Reserve Board of Governors.
16. Carlson J.A. A study of price forecasts. Annals of Economic and Social Measurement 1 (1977) 27-56
17. Cecchetti S., Chu R., and Steindel C. The unreliability of inflation indicators. Federal Reserve Bank of New York Current Issues in Economics and Finance 6 (2000) 1-6
18. Chen R.R., and Scott L. Maximum likelihood estimation for a multi-factor equilibrium model of the term structure of interest rates. Journal of Fixed Income 3 (1993) 14-31
19. Clark T.E. A comparison of the CPI and the PCE price index. Federal Reserve Bank of Kansas City Economic Review 3 (1999) 15-29
20. Clark, T.E., McCracken, M.W., 2006. The predictive content of the output gap for inflation: resolving in-sample and out-of-sample evidence. Journal of Money, Credit and Banking, forthcoming.
21. Clemen R.T. Combining forecasts: a review and annotated bibliography. International Journal of Forecasting 5 (1989) 559-581
22. Cochrane J., and Piazzesi M. Bond risk premia. American Economic Review 95 1 (2005) 138-160
23. Cogley T., and Sargent T.J. Drifts and volatilities: monetary policies and outcomes in the post WWII U.S. Review of Economic Dynamics 8 (2005) 262-302
24. Croushore, D., 1998. Evaluating inflation forecasts. Working Paper 98-14, Federal Reserve Bank of St. Louis.
25. Curtin, R.T., 1996. Procedure to estimate price expectations. Mimeo, University of Michigan Survey Research Center.
26. Dai Q., and Singleton K.J. Expectation puzzles, time-varying risk premia, and affine models of the term structure. Journal of Financial Economics 63 (2002) 415-441
27. Diebold F.X. Forecast combination and encompassing: reconciling two divergent literatures. International Journal of Forecasting 5 (1989) 589-592
28. Diebold F.X., and Lopez J.A. Forecasting evaluation and combination. In: Maddala G.S., and Rao C.R. (Eds). Handbook of Statistics (1996), Elsevier, Amsterdam 241-268
29. Duffee G.R. Term premia and the interest rate forecasts in affine models. Journal of Finance 57 (2002) 405-443
30. Duffie D., and Kan R. A yield-factor model of interest rates. Mathematical Finance 6 (1996) 379-406
31. Estrella A., and Mishkin F.S. The predictive power of the term structure of interest rates in Europe and the United States: implications for the European Central Bank. European Economic Review 41 (1997) 1375-1401
32. Evans M.D.D., and Lewis K.K. Do expected shifts in inflation affect estimates of the long-run Fisher relation?. Journal of Finance 50 (1995) 225-253
33. Evans M.D.D., and Wachtel P. Inflation regimes and the sources of inflation uncertainty. Journal of Money, Credit and Banking 25 (1993) 475-511
34. Fama E.F. Short-term interest rates as predictors of inflation. American Economic Review 65 (1975) 269-282
35. Fama E.F., and Gibbons M.R. A comparison of inflation forecasts. Journal of Monetary Economics 13 (1984) 327-348
36. Fisher J.D.M., Liu C.T., and Zhou R. When can we forecast inflation?. Federal Reserve Bank of Chicago Economic Perspectives 1 (2002) 30-42
37. Frankel J.A., and Lown C.S. An indicator of future inflation extracted from the steepness of the interest rate yield curve along its entire length. Quarterly Journal of Economics 59 (1994) 517-530
38. Fuhrer J., and Moore G. Inflation persistence. Quarterly Journal of Economics 110 (1995) 127-159
39. Gali J., and Gertler M. Inflation dynamics: a structural econometrics analysis. Journal of Monetary Economics 44 2 (1999) 195-222
40. Grant A.P., and Thomas L.B. Inflation expectations and rationality revisited. Economics Letters 62 (1999) 331-338
41. Gray S.F. Modeling the conditional distribution of interest rates as a regime-switching process. Journal of Financial Economics 42 (1996) 27-62
42. Hamilton J. Rational-expectations econometric analysis of changes in regime: an investigation of the term structure of interest rates. Journal of Economic Dynamics and Control 12 (1988) 385-423
43. Hamilton J. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica 57 (1989) 357-384
44. Hamilton J.D. Uncovering financial market expectations of inflation. Journal of Political Economy 93 (1985) 1224-1241
45. Hansen L.P., and Hodrick R.J. Forward exchange rates as optimal predictors of future spot rates: an econometric analysis. Journal of Political Economy 88 (1980) 829-853
46. Hodrick R.J., and Prescott E.C. Postwar U.S. business cycles: an empirical investigation. Journal of Money, Credit and Banking 29 (1997) 1-16
47. Holden S., and Driscoll J.C. Inflation persistence and relative contracting. American Economic Review 93 (2003) 1369-1372
48. Inoue, A., Kilian, L., 2005. How useful is bagging in forecasting economic time series? A case study of U.S. CPI inflation. Working paper, University of Michigan.
49. Jorion P., and Mishkin F.S. A multi-country comparison of term structure forecasts at long horizons. Journal of Financial Economics 29 (1991) 59-80
50. Kim C.J., and Nelson C.R. Has the U.S. economy become more stable? A Bayesian approach based on a Markov switching model of the business cycle. Review of Economics and Statistics 81 (1999) 608-616
51. Kim, D.H., Orphanides, A., 2005. Term structure estimation with survey data on interest rate forecasts. Working paper, Federal Reserve Board of Governors.
52. Kozicki S. Predicting real growth and inflation with the yield spread. Federal Reserve Bank of Kansas City Economic Review 82 (1997) 39-57
53. Marcellino, M., Stock, J.H., Watson, M.W., 2006. A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series. Journal of Econometrics, forthcoming.
54. McConnell M.M., and Perez-Quiros G. Output fluctuations in the United States: what has changed since the early 1950's. American Economic Review 90 (2000) 1464-1476
55. Mehra Y.P. Survey measures of expected inflation: revisiting the issues of predictive content and rationality. Federal Reserve Bank of Richmond Economic Quarterly 88 (2002) 17-36
56. Mishkin F.S. What does the term structure tell us about future inflation?. Journal of Monetary Economics 25 (1990) 77-95
57. Mishkin F.S. A multi-country study of the information in the term structure about future inflation. Journal of International Money and Finance 19 (1991) 2-22
58. Nelson C.R., and Schwert G.W. On testing the hypothesis that the real rate of interest is constant. American Economic Review 67 (1977) 478-486
59. Newey W.K., and West K.D. A simple positive, semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55 (1987) 703-708
60. Ng S., and Perron P. Lag length selection and the construction of unit root tests with good size and power. Econometrica 69 (2001) 1519-1554
61. Orphanides, A., van Norden, S., 2003. The reliability of inflation forecasts based on output gap estimates in real time. Working paper, CIRANO.
62. Pennacchi G.G. Identifying the dynamics of real interest rates and inflation: evidence using survey data. Review of Financial Studies 4 (1991) 53-86
63. Plosser C.I., and Schwert G.W. Money, income, and sunspots: measuring the economic relationships and the effects of difference. Journal of Monetary Economics 4 (1978) 637-660
64. Quah D., and Vahey S.P. Measuring core inflation. Economic Journal 105 (1995) 1130-1144
65. Schorfheide F. VAR forecasting under misspecification. Journal of Econometrics 128 (2005) 99-136
66. Sims C.A. The role of models and probabilities in the monetary policy process. Brookings Papers on Economic Activity 2 (2002) 1-40
67. Souleles N.S. Expectations, heterogeneous forecast errors and consumption: micro evidence from the Michigan consumer sentiment surveys. Journal of Money, Credit and Banking 36 (2004) 39-72
68. Stock J.H., and Watson M.W. New indexes of coincident and leading economic indicators. In: Blanchard O.J., and Fischer S. (Eds). NBER Macroeconomics Annual (1989), MIT Press, Boston 351-394
69. Stock J.H., and Watson M.W. Forecasting inflation. Journal of Monetary Economics 44 (1999) 293-335
70. Stock J.H., and Watson M.W. Forecasting using principal components from a large number of predictors. Journal of the American Statistical Association 97 (2002) 1167-1179
71. Stock J.H., and Watson M.W. Has the business cycle changed and why?. In: Gertler M., and Rogoff K. (Eds). NBER Macroeconomics Annual 2002 (2002), MIT Press, Boston 159-218
72. Stock J.H., and Watson M.W. Forecasting output and inflation: the role of asset prices. Journal of Economic Literature 41 (2003) 788-829
73. Stock, J.H., Watson, M.W., 2005. An empirical comparison of methods for forecasting using many predictors. Working paper, Harvard University.
74. Stockton D., and Glassman J. An evaluation of the forecast performance of alternative models of inflation. Review of Economics and Statistics 69 (1987) 108-117
75. Theil H. On the use of incomplete prior information in regression analysis. Journal of the American Statistical Association 58 (1963) 401-414
76. Theil H., and Goldberger A.S. On pure and mixed estimation in economics. International Economic Review 2 (1961) 65-78
77. Thomas L.B. Survey measures of expected U.S. inflation. Journal of Economic Perspectives 13 (1999) 125-144
78. Timmermann A. Forecast combinations. In: Elliot G., Granger C.W.J., and Timmermann A. (Eds). Handbook of Economic Forecasting (2006), Elsevier, Amsterdam in press
79. West K.D. Asymptotic inference about predictive ability. Econometrica 64 (1996) 1067-1084
80. West K.D. Forecast evaluation. In: Elliott G., Granger C.W.J., and Timmermann A. (Eds). Handbook of Economic Forecasting (2006), Elsevier, Amsterdam in press
81. West K.D., and McCracken M.W. Regression-based tests of predictive ability. International Economic Review 39 (1998) 817-840
82. Wright, J.H., 2004. Forecasting U.S. inflation by Bayesian model averaging. Working paper, Federal Reserve Board of Governors.