ALTERNATIVE P MODELS OF INFLATION FORECASTS

Authors

  • Jim Lee

    1. Lee:Associate Professor, Fort Hays State University Hays, Kansas, Phone 1–785-628-5868 Fax 1–785-628-5398, E-mail jlee@fhsu.edu
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    • *This is a revised version of a paper presented at the 1997 Western Economic Association International meetings in Seattle. I thank Richard Anderson for the M2+ data and valuable comments, and Justino De La Cruz and two anonymous referees for helpful suggestions.


Abstract

This paper reevaluates the inflation forecast performance of M2-based P* models relative to other competing models over the period of 1970–96. Included in the comparative study are newly developed monetary aggregates, including M2+, MZM, and M2*, and direct treatments of velocity changes associated with recent developments in M2. Out-of-sample rolling-horizon forecast exercises suggest that the predictive accuracy of alternative P* model specifications relative to traditional inflation models is not robust to different subsamples. The switching forecast performance between money-based and output-based models across periods highlights the extent of structural instability in the inflation generating process. (JEL E3, E4, C2)

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