The role of oil prices in Philips curve modelling and forecasting of inflation

Journal of Economic and Financial Sciences


 
 
Field Value
 
Title The role of oil prices in Philips curve modelling and forecasting of inflation
 
Creator Adelakun, Ojo J. Ngalawa, Harold
 
Subject inflation-forecasts; predictive model; Phillips curve; oil prices; RMSE; ARMSE; ARDL
Description Orientation: The availability of an accurate and a reliable quantitative method for forecasting the behaviour of inflation is of importance, given the emphasis on price stability by central banks.Research purpose: The conventional Phillips curve predictive model to explain the role of oil prices and associated implications in the forecasting of inflation using data from oil-exporting and oil-importing countries.Motivation for the study: To determine whether augmenting the traditional demand-side Phillips curve with oil price supply-side shocks matters for the accuracy of predicting inflation using the Phillips curve. Study to investigate the role of oil prices in the Phillip curve accuracy to predict inflation from the perspective of oil exporting –oil importing dichotomy.Research approach/design and method: We extend the conventional Phillips curve predictive model to explain the role of oil prices and associated implications in the forecasting of inflation using data from oil-exporting and oil-importing countries. The study demonstrates that the forecast performance of the traditional (demand-based) Phillips curve improves when it is augmented with oil prices.Main findings: We also find that, contrary to previous findings in the literature, the augmented Phillips curve model, which incorporates oil prices as a supply-side factor, outperforms the random walk model.Practical/managerial implications: The robustness of these findings is evident across different sub-sample periods, forecast horizons and individual oil-exporting and oil-importing countries under consideration.Contribution/value-add: The comparison outcome further reaffirms that the augmented Phillips curve with changes in oil prices as a proxy for the supply-side factor is the preferred predictive model in both in-sample and out-of-sample forecast performance.
 
Publisher AOSIS
 
Contributor he authors acknowledge the financial aid - Grant from African Economics Research Consortium (AERC), Nairobi, Kenya, supported this research.
Date 2020-06-25
 
Type info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion —
Format text/html application/epub+zip text/xml application/pdf
Identifier 10.4102/jef.v13i1.499
 
Source Journal of Economic and Financial Sciences; Vol 13, No 1 (2020); 11 pages 2312-2803 1995-7076
 
Language eng
 
Relation https://jefjournal.org.za/index.php/jef/article/view/499/955 https://jefjournal.org.za/index.php/jef/article/view/499/954 https://jefjournal.org.za/index.php/jef/article/view/499/956 https://jefjournal.org.za/index.php/jef/article/view/499/953
 
Rights Copyright (c) 2020 Ojo J. Adelakun, Harold Ngalawa https://creativecommons.org/licenses/by/4.0