Forecasting Inflation Using Interest-Rate and Time-Series Models: Some International Evidence

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It has been suggested that inflation forecasts derived from short-term interest rates are as accurate as time-series forecasts. Previous analyses of this notion have focused on U.S. data, providing mixed results. In this article, the authors extend previous work by testing the hypothesis using data taken from the United States and five other countries. Using monthly Eurocurrency rates and the consumer price index for the period 1967-86, their results indicate that time-series forecasts of inflation have equal or lower forecast errors and have unbiased predictions more often than the interest-rate-based forecasts. Copyright 1990 by the University of Chicago.(This abstract was borrowed from another version of this item.)