Forecasting Inflation

James H. Stock, Mark W. Watson

NBER Working Paper No. 7023
Issued in March 1999
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

This paper investigates forecasts of U.S. inflation at the 12-month horizon. The starting point is the conventional unemployment rate Phillips curve, which is examined in a simulated out of sample forecasting framework. Inflation forecasts produced by the Phillips curve generally have been more accurate than forecasts based on other macroeconomic variables, including interest rates, money and commodity prices. These forecasts can however be improved upon using a generalized Phillips curve based on measures of real aggregate activity other than unemployment, especially a new index of aggregate activity based on 61 real economic indicators.

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Document Object Identifier (DOI): 10.3386/w7023

Published: Stock, James and Mark W. Watson. "Forecasting Inflation," Journal of Monetary Economics, 1999, v44(2,Oct), 293-335. citation courtesy of

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