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Working Paper

Forecasting Inflation: Phillips Curve Effects on Services Price Measures

We estimate an empirical model of inflation that exploits a Phillips curve relationship between a measure of unemployment and a subaggregate measure of inflation (services). We generate an aggregate inflation forecast from forecasts of the goods subcomponent separate from the services subcomponent, and compare the aggregated forecast to the leading time-series univariate and standard Phillips curve forecasting models. Our results indicate marked improvements in point and density forecasting accuracy statistics for models that exploit relationships between services inflation and the unemployment rate.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Tallman, Ellis W., and Saeed Zaman. 2016. “Forecasting Inflation: Phillips Curve Effects on Services Price Measures.” Federal Reserve Bank of Cleveland, Working Paper No. 15-19R. https://doi.org/10.26509/frbc-wp-201519r