Predicting inflation: Does the quantity theory help?

Lance J. Bachmeier, Norman R. Swanson

Research output: Contribution to journalReview articlepeer-review

17 Scopus citations

Abstract

Various inflation forecasting models are compared for the period 1979-2003 using a simulated out-of-sample forecasting framework. Our findings are (1) M2 has marginal predictive content for inflation; (2) it is necessary to allow for the possibility that money, prices, and output are cointegrated; and (3) cointegration vector parameter estimation error is important when making out-of-sample forecasts. Consistent with previous work, we find a structural break in the early 1990s, but the break was easily detected and would not have affected out-of-sample inflation forecasts. Two Monte Carlo experiments that lend credence to our findings are also reported on.(JEL E31, C32).

Original languageEnglish (US)
Pages (from-to)570-585
Number of pages16
JournalEconomic Inquiry
Volume43
Issue number3
DOIs
StatePublished - Jul 2005

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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