Professional Forecasters vs. Shallow Neural Network Ensembles: Assessing Inflation Prediction Accuracy

  • Jane Binner*
  • , Logan Kelly
  • , Jonathan Tepper
  • *Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

Accurate inflation forecasting is crucial for effective monetary policy, particularly during turning points that demand policy realignment. This study examines the efficacy of dedicating ensembles of shallow recurrent neural network models to different forecasting horizons for predicting U.S. inflation turning points more precisely than traditional methods, including the Survey of Professional Forecasters (SPF). We employ monthly data from January 1970 to May 2024, training these ensemble models on information through December 2022 and testing on out-of-sample observations from January 2023 to May 2024. The models generate forecasts at horizons of up to 16 months (one ensemble per horizon), accounting for both short- and medium-term dynamics. The results indicate that such ensembles of recurrent neural networks consistently outperform conventional approaches using key performance metrics, notably detecting inflation turning points earlier and projecting a return to target levels by May 2024—several months ahead of the Survey of Professional Forecasters’ average forecast. These findings underscore the value of such ensembles in capturing complex nonlinear relationships within macroeconomic data, offering a more robust alternative to standard econometric methods. By delivering timely and accurate forecasts, dedicated ensembles of shallow recurrent neural networks hold great promise for informing proactive policy measures and guiding decisions under uncertain economic conditions.
Original languageEnglish
Article number173
Number of pages16
JournalJournal of Risk and Financial Management
Volume18
Issue number4
DOIs
Publication statusPublished - 25 Mar 2025

Keywords

  • Survey of professional forecasters
  • : inflation forecasting
  • United States monetary policy

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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