Afees A Salisu
Can urban coffee consumption help predict US inflation?
Salisu, Afees A; Swaray, Raymond; Adediran, Idris A
Dr Raymond Swaray R.Swaray@hull.ac.uk
Senior Lecturer (Associate Professor) in Economics
Idris A Adediran
Motivated by the importance of coffee to Americans and the significance of the coffee subsector to the US economy, we pursue three notable innovations. First, we augment the traditional Phillips curve model with the coffee price as a predictor, and show that the resulting model outperforms the traditional variant in both in-sample and out-of-sample predictability of US inflation. Second, we demonstrate the need to account for the inherent statistical features of predictors such as persistence, endogeneity and conditional heteroskedasticity effects when dealing with US inflation. Consequently, we offer robust illustrations to show that the choice of estimator matters for improved US inflation forecasts. Third, the proposed augmented Phillips curve also outperforms time-series models such as ARIMA and ARFIMA for both in-sample and out-of-sample forecasts. Our results show that augmenting the traditional Phillips curve with the urban coffee price will produce better forecast results for US inflation only when the statistical effects are captured in the estimation process. Our results are robust to alternative measures of inflation, different data frequencies, higher-order moments, multiple data samples and multiple forecast horizons.
|Journal Article Type||Article|
|Journal||Journal of forecasting|
|Peer Reviewed||Peer Reviewed|
|APA6 Citation||Salisu, A. A., Adediran, I. A., Salisu, A. A., Swaray, R., & Adediran, I. A. (2019). Can urban coffee consumption help predict US inflation?. Journal of forecasting, 38(7), 649-668. https://doi.org/10.1002/for.2589|
|Keywords||USA; Phillips curve; Coffee price; Inflation forecasts; Forecast evaluation|
|Additional Information||Received: 2018-04-23; Accepted: 2019-03-08; Published: 2019-04-25|
This file is under embargo until Apr 26, 2021 due to copyright reasons.
Contact R.Swaray@hull.ac.uk to request a copy for personal use.
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