Why has U.S. inflation become harder to forecast?

James H. Stock, Mark W. Watson

Research output: Contribution to journalArticle

585 Scopus citations

Abstract

We examine whether the U.S. rate of price inflation has become harder to forecast and, to the extent that it has, what changes in the inflation process have made it so. The main finding is that the univariate inflation process is well described by an unobserved component trend-cycle model with stochastic volatility or, equivalently, an integrated moving average process with time-varying parameters. This model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well.

Original languageEnglish (US)
Pages (from-to)3-33
Number of pages31
JournalJournal of Money, Credit and Banking
Volume39
Issue numberSUPPL.1
DOIs
StatePublished - Feb 1 2007

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Keywords

  • Great moderation
  • Moving average
  • Phillips curve
  • Trend-cycle model

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