A Neural Network Approach to Forecasting Inflation

NIESR forecasts of inflation over the next few months are based on Dixon (2021), which outlined a simple method for predicting inflation in the short run, using the simple arithmetic of annual inflation.

Pub. Date
09 May, 2024

We construct the following two types of MRN models of inflation:

a. a simple MRN consisting of two input variables: the mom percentage change in inflation (auto-regressive term) and the natural log of the price level;

b. a complex MRN that includes the following additional five exogenous variables: real GDP, PPI index for industrial output, UK gilts 10 year yield, sterling effective exchange rate (index level) and adjusted Divisia price dual. (See Binner et al. (2023) for details of the construction of the Divisia price dual).