We develop a parsimonious bivariate model of inflation and unemployment that allows for persistent variation in trend inflation and in the non-accelerating inflation rate of unemployment. The model, which consists of five unobserved components (including the trends) with stochastic volatility,...

Historically, time series forecasts of economic variables have used only a handful of predictor variables, while forecasts based on a large number of predictors have been the province of judgmental forecasts and large structural econometric models. The past decade, however, has seen considerable...