Regime-Switching Models for Estimating Inflation Uncertainty

47 Pages Posted: 19 Oct 2015

See all articles by Jeremy Nalewaik

Jeremy Nalewaik

Board of Governors of the Federal Reserve System

Date Written: September 19, 2015

Abstract

This paper constructs regime-switching models for estimating the probability of inflation returning to its relatively high levels of variability and persistence in the 1970s and 1980s. Forecasts and probabilities of extreme events from the models are evaluated against comparable estimates from other statistical models, from surveys, and from financial markets. The paper then uses the models to construct prediction intervals around Federal Reserve Board staff forecasts of PCE price inflation, combining the recent non-parametric forecast error distribution with parametric information from the model. The outer tails of the prediction intervals depend importantly on the probability inflation is in its high-variance, high-persistence regime.

Keywords: Inflation, Markov-Switching, Uncertainty

JEL Classification: E3

Suggested Citation

Nalewaik, Jeremy John, Regime-Switching Models for Estimating Inflation Uncertainty (September 19, 2015). FEDS Working Paper No. 2015-093. Available at SSRN: https://ssrn.com/abstract=2676273 or http://dx.doi.org/10.2139/ssrn.2676273

Jeremy John Nalewaik (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
44
Abstract Views
286
PlumX Metrics