John Martin Harmon
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The U.S. Federal Reserve relies on a target rate of inflation of 2% to determine monetary policy actions regarding raising or lowering the federal funds rate. If the actual rate of inflation is above 2%, a tightening of monetary policy usually occurs. Conversely, an inflation rate below 2% can lead to a policy of monetary easing. The purpose of this study is to develop a time trend forecasting model of inflation to determine if expected inflation rates are above or below the target rate. Using CPI and CPI less food and energy as the measures of inflation, forecasts are made on a monthly basis for both 2017&2018.The forecasts for 2017 will determine the forecast accuracy of the regression models and the forecasts for 2018 will provide comparisons to the benchmark 2% target rate. The Root Mean Square Error(RMSE) is used to measure forecast accuracy. The time trend regression models are fitted to the monthly CPI data for 2009-2016 and 2009-2017.
Tony S. Caporale, Robert D. Dean
Primary Advisor's Department
Economics and Finance
Stander Symposium project
"Forecasting U.S. Inflation" (2018). Stander Symposium Projects. 1305.