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Title: | Forecasting inflation with a zero lower bound or negative interest rates: evidence from point and density forecasts |
Authors: | Anderl, C Caporale, GM |
Keywords: | density forecasts;inflation forecasting;shadow interest rates;zero lower bound |
Issue Date: | 6-Mar-2023 |
Publisher: | Wiley on behalf of The University of Manchester |
Citation: | Anderl, C. and Caporale, G.M. (2023) 'Forecasting inflation with a zero lower bound or negative interest rates: evidence from point and density forecasts', The Manchester School, 91 (3), pp. 171 - 232. doi: 10.1111/manc.12434. |
Abstract: | Copyright © 2023 The Authors. This paper investigates the predictive power of the shadow rate for the inflation rate in countries with a zero lower bound (the US, the UK and Canada) and in those with negative rates (Japan, the Euro Area and Switzerland). Using shadow rates obtained from two different models (the WX(3) and the KANSM(2) ones) and for different LB parameters we compare the out-of-sample forecasting performance of an inflation model including a shadow rate with a benchmark one excluding it. Both specifications are estimated by OLS (Ordinary Least Squares) and includes a range of macroeconomic factors computed by means of principal component analysis. Both point and density forecasts of the inflation rate are evaluated. The models including the shadow rate are found to outperform the benchmark ones according to both sets of criteria except in countries operating an official inflation targeting regime. Both types of shadow rates appear to produce equally accurate out-of-sample inflation forecasts. |
URI: | https://bura.brunel.ac.uk/handle/2438/26125 |
DOI: | https://doi.org/10.1111/manc.12434 |
ISSN: | 1463-6786 |
Other Identifiers: | ORCID iD: Christina Anderl https://orcid.org/0000-0001-6770-6698 ORCID iD: Guglielmo Maria Caporale https://orcid.org/0000-0002-0144-4135 |
Appears in Collections: | Dept of Economics and Finance Research Papers |
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FullText.pdf | Copyright © 2023 The Authors. The Manchester School published by The University of Manchester and John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited. | 1.74 MB | Adobe PDF | View/Open |
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