Sunday, August 27, 2017

Do Phillips Curves Conditionally Help to Forecast Inflation?

Abstract

This paper reexamines the forecasting ability of Phillips curves from both an uncon- ditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our univariate forecasting models. Significantly, we also find conditional inferiority, with some exceptions. When we do find improvement, it is asymmetric – Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. Any improvement we find, however, vanished over the post-1984 period.
Federal Reserve Bank of Philadelphia
Do Phillips Curves Conditionally Help to Forecast Inflation?
Michael Dotsey, Shigeru Fujita, and Tom Stark

1 comment:

AXEC / E.K-H said...

Note on Michael Dotsey, Shigeru Fujita, and Tom Stark on ‘Do Phillips Curves Conditionally Help to Forecast Inflation?’

The working paper concludes: “We find no evidence for relying on the Phillips curve during normal times, such as those currently facing the U.S. economy.”

This is due to the fact that the Phillips curve is misspecified since Samuelson/Solow. For the correct specification see ‘Putting economic policy on scientific foundations’
http://axecorg.blogspot.de/2017/08/putting-economic-policy-on-scientific.html

Egmont Kakarot-Handtke