Abstract
This article evaluates various models’ predictive power for U.S. inflation rate using a simulated out-of-sample forecasting framework. The starting point is the traditional unemployment Phillips curve. We show that a factor Phillips curve model is superior to the traditional Phillips curve, and its performance is comparable to other factor models. We find that a factor AR model is superior to the factor Phillips curve model, and is the best bivariate or factor model at longer horizons. Finally, we investigate a New Keynesian Phillips curve model, and find that its forecasting performance dominates all other models at the longer horizons.
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Liu, D., Jansen, D.W. Does a factor Phillips curve help? An evaluation of the predictive power for U.S. inflation. Empir Econ 40, 807–826 (2011). https://doi.org/10.1007/s00181-010-0352-0
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DOI: https://doi.org/10.1007/s00181-010-0352-0