An Evaluation of the Forecast Performance of Alternative Models of Inflation.

The forecast performances of three groups of models of the inflation process are evalu-ated in this paper: ra tional expectations models with instantaneous market clearing, monetarist models , and expectations-augmented Phillips curves. The dynamic simulations performed for the intervals between 1977 and 1984 are somewhat discouraging for all three theories. The variation in forecasting performance within model groups often exc eeded the variation in performance across model groups. Nevertheless, the Philli ps curve formulation rarely performed worse than the other two models, and in th e 1981 to 1984 period it performed substantially better than the alternative mod els of inflation. Copyright 1987 by MIT Press.