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Federal Reserve Bank of St. Louis
A Measure of Price Pressures
The Federal Reserve devotes significant resources to forecasting key economic variables such as real gross domestic product growth, employment, and inflation. The outlook for these variables also matters a great deal to businesses and financial market participants. The authors present a factor-augmented Bayesian vector autoregressive forecasting model that significantly outperforms both a benchmark random walk model and a pure time-series model. They then use these factors in an ordered probit model to develop the probability distribution over a 12-month horizon. One distribution assesses the probability that inflation will exceed 2.5 percent over the next year; they term this probability a price pressure measure. This price pressure measure would provide policymakers and markets with a quantitative assessment of the probability that average inflation over the next 12 months will be higher than the Fed’s long-term inflation target of 2 percent.
Cite this item
Laura E. Jackson & Kevin L. Kliesen & Michael T. Owyang, "A Measure of Price Pressures"
, Federal Reserve Bank of St. Louis, Review, volume 97, issue 1, pages 25-52, 2015.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This item with handle RePEc:fip:fedlrv:00035
is also listed on EconPapers
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