The Accuracy of a Forecast Targeting Central Bank
Nina Skrove Falch
affiliation not provided to SSRN
University of Oslo - Department of Economics
Economics Discussion Paper No. 2011-6
This paper evaluates inflation forecasts made by Norges Bank which is recognized as a successful forecast targeting central bank. It is reasonable to expect that Norges Bank produces inflation forecasts that are on average better than other forecasts, both 'naÃ¯ve' forecasts, and forecasts from econometric models outside the central bank. The authors find that the superiority of the Bank's forecast cannot be asserted, when compared with genuine ex-ante real time forecasts from an independent econometric model. The 1-step Monetary Policy Report forecasts are preferable to the 1-step forecasts from the outside model, but for the policy relevant horizons (4 to 9 quarters ahead), the forecasts from the outsider model are preferred with a wider margin. An explanation in terms of too high speed of adjustment to the inflation target is supported by the evidence. Norges Bank's forecasts are convincingly better than 'naÃ¯ve' forecasts over the second half of our sample, but not over the whole sample, which includes a change in the mean of inflation.
Number of Pages in PDF File: 23
Keywords: inflation forecasts, monetary policy, forecast comparison, forecast targeting central bank, econometric models
JEL Classification: C32, C53, E37, E44, E47, E52, E58, E65working papers series
Date posted: April 18, 2011
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