Comparison of selected simple models of inflation in the Czech economy

This paper begins with a description of simple select models of inflation a nd their ability to fit the data. The paper in turn measures the stability of particular parsimonious models. One-step forecast tests are applied, whi ch establish the instability of the money demand model compel-ed with other models, despite its ability to fit the data nearly as well as the P-star m odel. Further, the forecasting performances of the selected parsimonious mo dels are analyzed, though only the performance of one-step forecasts are fu lly treated given the insufficient descriptive ability of the AR processes of explanatory variables. As a measure of forecast ability, the author empl oys U-statistic, RMSE, and MAE tests. The above statistics assign the best- forecast performance to the modified version of the P-star model of inflati on for a small, open economy.