Modeling and Forecasting Inflation in Japan

June 1, 2001

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Format: Chicago

Toshitaka Sekine. Modeling and Forecasting Inflation in Japan, (USA: International Monetary Fund, 2001) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates an inflation function and forecasts one-year ahead inflation for Japan. It finds that (i) markup relationships, excess money and the output gap are particularly relevant long-run determinants for an equilibrium correction model (EqCM) of inflation; (ii) with intercept corrections, one-year ahead inflation forecast performance of the EqCM is good; and (iii) forecast accuracy can be improved by combining forecasts of the EqCM with those made by rival models. The EqCM obtained would serve for structural model-based inflation forecasting. It also highlights the importance of adjustment to a pure model-based forecast by utilizing information of alternative models. The methodology employed is applicable to a wider range of countries including some emerging market economies.

Subject: Economic forecasting, Foreign exchange, Inflation, Oil prices, Output gap, Prices, Production, Purchasing power parity, Vector autoregression

Keywords: Forecast, Inflation, Inflation expectation, Inflation function, Inflation indicator, Inflation process, Japan, Oil prices, Output gap, Purchasing power parity, Random walk, Random walk model, Structural inflation, Time series, Time series technique, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/082
Stock No:

WPIEA0822001
ISBN:

9781451850444
ISSN:

1018-5941

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