The accuracy of a forecast targeting central bank

Nina Skrove Falch and Ragnar Nymoen ()

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2011, vol. 5, No 2011-15, 36 pages

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 (search for similar items in EconPapers)
JEL-codes: C32 C53 E37 E44 E47 E52 E58 E65 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: The accuracy of a forecast targeting central bank (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201115

DOI: 10.5018/economics-ejournal.ja.2011-15

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