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The Elusive Predictive Ability of Global Inflation

Author

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  • Carlos Medel
  • Michael Pedersen
  • Pablo Pincheira
Abstract
In this paper we analyze the contribution of international measures of inflation to predict local ones. To that end, we consider the set of current thirty one OECD economies for which inflation data is available at a monthly frequency. By considering this set of countries, a span of time including the post-crisis period and measures of both core and headline inflation, we are extending in three important dimensions the previous literature on this topic. Our main results indicate that on average there is a non-negligible predictive pass-through from international to local inflation both at the core and headline levels. This predictive pass-through has increased in the last period of our sample. Nevertheless, there is heterogeneity in the size and statistical significance of this pass-through which is especially important at the core level. Finally, important reductions in the Root Mean Squared Prediction Error are obtained only for a handful of countries

Suggested Citation

  • Carlos Medel & Michael Pedersen & Pablo Pincheira, 2014. "The Elusive Predictive Ability of Global Inflation," Working Papers Central Bank of Chile 725, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:725
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    Cited by:

    1. Duncan, Roberto & Martínez-García, Enrique, 2019. "New perspectives on forecasting inflation in emerging market economies: An empirical assessment," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1008-1031.
    2. Pincheira, Pablo & Hernández, Ana María, 2019. "Forecasting Unemployment Rates with International Factors," MPRA Paper 97855, University Library of Munich, Germany.
    3. Pablo Pincheira Brown & Nicolás Hardy, 2024. "Correlation‐based tests of predictability," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(6), pages 1835-1858, September.
    4. Pincheira, Pablo M. & West, Kenneth D., 2016. "A comparison of some out-of-sample tests of predictability in iterated multi-step-ahead forecasts," Research in Economics, Elsevier, vol. 70(2), pages 304-319.
    5. Juselius, Mikael & Takáts, Előd, 2021. "Inflation and demography through time," Journal of Economic Dynamics and Control, Elsevier, vol. 128(C).
    6. Jonathan Kearns, 2016. "Global inflation forecasts," BIS Working Papers 582, Bank for International Settlements.
    7. Pablo Pincheira Brown, 2022. "A Power Booster Factor for Out-of-Sample Tests of Predictability," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 45(89), pages 150-183.
    8. Mikael Juselius & Előd Takáts, 2018. "The enduring link between demography and inflation," BIS Working Papers 722, Bank for International Settlements.
    9. Dellas, Harris & Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2018. "The macroeconomic and fiscal implications of inflation forecast errors," Journal of Economic Dynamics and Control, Elsevier, vol. 93(C), pages 203-217.
    10. Stephen G. Hall & George S. Tavlas & Yongli Wang, 2023. "Forecasting inflation: The use of dynamic factor analysis and nonlinear combinations," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 514-529, April.
    11. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.
    12. Nyoni, Thabani & Nathaniel, Solomon Prince, 2018. "Modeling rates of inflation in Nigeria: an application of ARMA, ARIMA and GARCH models," MPRA Paper 91351, University Library of Munich, Germany.
    13. Mikael Juselius & Előd Takáts, 2018. "The enduring link between demography and inflation," BIS Working Papers 722, Bank for International Settlements.
    14. Nikolaos Giannellis & Stephen G. Hall & Georgios P. Kouretas & George S. Tavlas, 2024. "Forecasting in turbulent times," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(4), pages 819-826, July.
    15. Carlos A. Medel, 2016. "Un análisis de la capacidad predictiva del precio del cobre sobre la inflación global," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(2), pages 128-153, August.
    16. Friedrich, Christian, 2016. "Global inflation dynamics in the post-crisis period: What explains the puzzles?," Economics Letters, Elsevier, vol. 142(C), pages 31-34.
    17. Stephen G. Hall & George S. Tavlas & Yongli Wang & Deborah Gefang, 2024. "Inflation forecasting with rolling windows: An appraisal," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(4), pages 827-851, July.
    18. S. Béreau & V. Faubert & K. Schmidt, 2018. "Explaining and Forecasting Euro Area Inflation: the Role of Domestic and Global Factors," Working papers 663, Banque de France.
    19. Carlos Medel, 2021. "Forecasting Brazilian Inflation with the Hybrid New Keynesian Phillips Curve: Assessing the Predictive Role of Trading Partners," Working Papers Central Bank of Chile 900, Central Bank of Chile.
    20. repec:zbw:bofrdp:2018_008 is not listed on IDEAS

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