Efficient Inflation Forecasts: An International Comparison

Alex Kane, Leonard Rosenthal

NBER Working Paper No. 1542
Issued in 1985
NBER Program(s):   ME

This paper addresses the question of whether nominal Eurocurrency interest rates provide significant information about expected inflation. To test this question two sets of inflation forecasts for the U.S. and five European countries were generated: 1) from time series of past inflation rates;2) by forecasting real rates from time series of past real rates and subtracting these forecasts from nominal rates. The accuracy of the two sets of inflation forecasts was compared. The results indicate that nominal Eurocurrency rates provide valuable marginal information about expected inflation for the U.S. and U.K., but not for the other European countries.

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