Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240327 
Year of Publication: 
2020
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 4/2020
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We show that the New Keynesian Phillips Curve (NKPC) outperforms standard benchmarks in forecasting U.S. inflation once frequency-domain information is taken into account. We do so by decomposing the time series (of inflation and its predictors) into several frequency bands and forecasting separately each frequency component of inflation. The largest statistically significant forecasting gains are achieved with a model that forecasts the lowest frequency component of inflation (corresponding to cycles longer than 16 years) flexibly using information from all frequency components of the NKPC inflation predictors. Its performance is particularly good in the returning to recovery from the Great Recession.
Subjects: 
inflation forecasting
new Keynesian Phillips curve
frequency domain
wavelets
JEL: 
C53
E31
E37
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-322-5
Document Type: 
Working Paper

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