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Inflation Volatility and Forecast Accuracy
Author(s) -
Hall Jamie,
Jääskelä Jarkko P.
Publication year - 2011
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/j.1467-8462.2011.00656.x
Subject(s) - economics , watson , volatility (finance) , stock (firearms) , econometrics , inflation (cosmology) , stochastic volatility , monetary economics , computer science , geography , physics , natural language processing , theoretical physics , archaeology
We examine the statistical properties of inflation in a sample of inflation‐targeting (IT) and non‐IT countries. It is hard to distinguish in which monetary regime inflation is less volatile. Inflation became easier to forecast in both groups of countries after the introduction of IT. The improvement was greater for IT countries, but forecast errors remain smaller for non‐IT countries. Our analysis is based on a stochastic volatility model proposed by Stock and Watson and its novel modification. Forecasts from the modified model are generally superior to both simple benchmarks and the original Stock and Watson model.