Phillips Curve Inflation Forecasts
This paper surveys the literature since 1993 on pseudo out-of-sample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and clarifies this literature using a consistent data set and methodology. The literature review and empirical results are gloomy and indicate that Phillips curve forecasts (broadly interpreted as forecasts using an activity variable) are better than other multivariate forecasts, but their performance is episodic, sometimes better than and sometimes worse than a good (not naïve) univariate benchmark. We provide some preliminary evidence characterizing successful forecasting episodes.
Prepared for the Federal Reserve Bank of Boston Conference, "Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective," June 9-11, 2008. We thank Ian Dew-Becker for research assistance and Michelle Barnes of the Boston Fed for data assistance. This research was funded in part by NSF grant SBR-0617811. Data and replication files are available at http://www.princeton.edu/~mwatson. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 53. citation courtesy of