We consider using out of sample mean squared prediction errors (MSPEs) to evaluate the null that a given series follows a zero mean martingale difference against the alternative that it is linearly predictable. Under the null of zero predictability, the population MSPE of the null “no...

Forecast evaluation often compares a parsimonious null model to a larger model that nests the null model. Under the null that the parsimonious model generates the data, the larger model introduces noise into its forecasts by estimating parameters whose population values are zero. We observe that...

Although many policymakers and analysts associate “core CPI inflation” with the CPI excluding food and energy, there are other measures of core consumer price inflation. Like the CPI excluding food and energy, these other measures typically attempt to identify the underlying trend in CPI...

The primary goal of Federal Reserve monetary policy is to foster maximum long-term growth in the U.S. economy by achieving price stability over time. Price stability will be achieved, according to some definitions, when inflation ceases to be a factor in the decision-making processes of...

In setting monetary policy in 1995, the Federal Reserve sought to promote sustainable economic growth and continued progress toward price stability. Toward those ends, the Federal Reserve adjusted the stance of monetary policy three times in 1995. In February, amid signs of increasing...

From early 1994 to early 1995, inflation surged in the producer price indexes for crude materials and intermediate goods. For example, inflation in intermediate goods prices rose from 2.6 percent annually in the first half of 1994 to 7.1 percent over the next nine months. At the same time,...

Small-scale VARs are widely used in macroeconomics for forecasting U.S. output, prices, and interest rates. However, recent work suggests these models may exhibit instabilities. As such, a variety of estimation or forecasting methods might be used to improve their forecast accuracy. These...

This study examines the problem of forecasting an aggregate of cointegrated disaggregates. It first establishes conditions under which forecasts of an aggregate variable obtained from a disaggregate VECM will be equal to those from an aggregate, univariate time series model, and develops a...