Finance and Economics Discussion Series (FEDS)
May 2006
Do Macro Variables, Asset Markets, or Surveys Forecast Inflation Better?
Andrew Ang, Geert Bekaert, and Min Wei
Abstract:
Surveys do! We examine the forecasting power of four alternative methods of forecasting U.S. inflation out-of-sample: time series ARIMA models; regressions using real activity measures motivated from the Phillips curve; term structure models that include linear, non-linear, and arbitrage-free specifications; and survey-based measures. We also investigate several methods of combining forecasts. Our results show that surveys outperform the other forecasting methods and that the term structure specifications perform relatively poorly. We find little evidence that combining forecasts produces superior forecasts to survey information alone. When combining forecasts, the data consistently places the highest weights on survey information.
Full Paper (Screen Reader Version)Keywords: ARIMA, Phillips curve, forecasting, term structure models
PDF: Full Paper
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