Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?

55 Pages Posted: 9 Aug 2005

See all articles by Andrew Ang

Andrew Ang

BlackRock, Inc

Geert Bekaert

Columbia Business School - Finance and Economics

Min Wei

Board of Governors of the Federal Reserve - Division of Monetary Affairs

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2005

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 optimal 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 using means or medians, or using optimal weights with prior information produces superior forecasts to survey information alone. When combining forecasts, the data consistently places the highest weights on survey information.

Keywords: ARIMA, Phillips curve, forecasting, term structure models

JEL Classification: E31, E37, E43, E44

Suggested Citation

Ang, Andrew and Bekaert, Geert and Wei, Min, Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better? (July 26, 2005). Available at SSRN: https://ssrn.com/abstract=770947 or http://dx.doi.org/10.2139/ssrn.770947

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Geert Bekaert

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Min Wei

Board of Governors of the Federal Reserve - Division of Monetary Affairs ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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