The Accuracy of a Forecast Targeting Central Bank

38 Pages Posted: 15 Dec 2011

See all articles by Nina Skrove Falch

Nina Skrove Falch

affiliation not provided to SSRN

Ragnar Nymoen

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

Abstract

This paper evaluates inflation forecasts made by Norges Bank which is a successful forecast targeting central bank. It is expected that Norges Bank produces inflation forecasts that are on average better than other forecasts, both naive forecasts, and forecasts from econometric models outside the central bank. We 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 (e.g., 4 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 better than the naive forecasts. Norwegian inflation appears to be predictable, despite the reduction in inflation persistence that has taken place over the last two decades.

Keywords: inflation forecasts, monetary policy, forecast comparison, forecast targeting central bank, econometric models

JEL Classification: C32, C53, E37, E44, E47, E52, E58, E65

Suggested Citation

Falch, Nina Skrove and Nymoen, Ragnar, The Accuracy of a Forecast Targeting Central Bank (2011). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 5, 2011-15, Available at SSRN: https://ssrn.com/abstract=1972786 or http://dx.doi.org/10.5018/economics-ejournal.ja.2011-15

Nina Skrove Falch (Contact Author)

affiliation not provided to SSRN

No Address Available

Ragnar Nymoen

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

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