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Forecasts of inflation from var models
Author(s) -
Webb Roy H.
Publication year - 1995
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980140309
Subject(s) - inflation (cosmology) , economics , econometrics , vector autoregression , monetary policy , constant (computer programming) , keynesian economics , computer science , physics , theoretical physics , programming language
Why are forecasts of inflation from VAR models so much worse than their forecasts of real variables? This paper documents that relatively poor performance, and finds that the price equation of a VAR model fitted to US post‐war data is poorly specified. Statistical work by other authors has found that coefficients in such price equations may not be constant. Based on specific monetary actions, two changes in monetary policy regimes are proposed. Accounting for those two shifts yields significantly more accurate forecasts and lessens the evidence of misspecification.