Forecasting inflation

This paper investigates forecasts of US inflation at the 12-month horizon. The starting point is the conventional unemployment rate Phillips curve, wh ich is examined in a simulated out-of-sample forecasting framework. Inflati on forecasts produced by the Phillips curve generally have been more accura te than forecasts based on other macroeconomic variables, including interes t rates, money and commodity prices. These forecasts can however be improve d upon using a generalized Phillips curve based on measures of real aggrega te activity other than unemployment, especially a new index of aggregate ac tivity based on 168 economic indicators. (C) 1999 Elsevier Science B.V. All rights reserved.