Forecasting Inflation with an Uncertain Output Gap

Arbeitspapier

The output gap is a crucial concept in the monetary policy framework, indicating demand pressure that generates inflation. However, its definition and estimation raise a number of theoretical and empirical questions. This paper evaluates a series of univariate and multivariate methods for extracting the output gap in Norway, and compares their value added in predicting inflation. We find that models including the output gap have better predictive power than models based on alternative indicators, and they forecast significantly better than simple benchmark models. At the longer forecast horizons, multivariate measures of the output gap perform better than the univariate gaps.

Object Details

• ISBN: 82-7553-347-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2006/2

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Price Level; Inflation; Deflation ; Business Fluctuations; Cycles ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: Phillips curve ; output gap ; forecast ; forecast combination

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bjørnland, Hilde C. ; Brubakk, Leif ; Jore, Anne Sofie
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/209865
• Last update: 10.03.2025, 11:43 AM CET