On the directional accuracy of inflation forecasts: evidence from South African survey data

Christian Pierdzioch, Monique B. Reid and Rangan Gupta

Journal of Applied Statistics, 2018, vol. 45, issue 5, 884-900

Abstract: We study the information content of South African inflation survey data by determining the directional accuracy of both short-term and long-term forecasts. We use relative operating characteristic (ROC) curves, which have been applied in a variety of fields including weather forecasting and radiology, to ascertain the directional accuracy of the forecasts. A ROC curve summarizes the directional accuracy of forecasts by comparing the rate of true signals (sensitivity) with the rate of false signals (one minus specifity). A ROC curve goes beyond market-timing tests widely studied in earlier research as this comparison is carried out for many alternative values of a decision criterion that discriminates between signals (of a rising inflation rate) and nonsignals (of an unchanged or a falling inflation rate). We find consistent evidence that forecasts contain information with respect to the subsequent direction of change of the inflation rate.

Date: 2018
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Related works:
Working Paper: On the Directional Accuracy of Inflation Forecasts: Evidence from South African Survey Data (2014)
Working Paper: On the Directional Accuracy of Inflation Forecasts: Evidence from South African Survey Data (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:japsta:v:45:y:2018:i:5:p:884-900

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DOI: 10.1080/02664763.2017.1322556

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