Is Inflation Target Announced by Bank Indonesia the Most Accurate Inflation Forecast?

Faisal Rachman
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Faisal Rachman: School of Economics, the University of Edinburgh (MSc. Economics student)

Economics and Finance in Indonesia, 2016, vol. 62, 98-120

Abstract: This article investigates whether following Bank Indonesia’s explicit inflation targets (forward-looking) is a more accurate method of predicting inflation rate in Indonesia than forecast methods utilizing past information of macroeconomic data (backward-looking). The analysis is conducted by performing naive, univariate, and multivariate time-series models with an out-of-sample forecast evaluation period of January 2014–December 2016. It is found that the backward-looking approach outperforms the forward-looking approach at all forecast horizons, indicating that Bank Indonesia still does not succeed to anchor inflation expectation towards the desired level.

Keywords: Inflation; Forward-Looking; Backward-Looking; ARMA; VAR (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 E37 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:201609

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