Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)

Deepraj Mukherjee () and David Kemme ()

MPRA Paper from University Library of Munich, Germany

Abstract: Countries in which inflation targeting has been adopted require high quality inflation forecasts. The Polish National Bank adopted a variant of implicit inflation targeting and therefore the ability to forecast inflation is critically important to policy makers. Since the domestic price formation process is still evolving, medium term inflation forecasting is often difficult. Using quarterly data from 1995-2007, we estimate and evaluate three types of models for inflation forecasting: (1) output gap models, (2) models involving money, and (3) models which bring the foreign sector into the price formation process. We find that openness is significant in the price formation process and inflation targeting is associated with lower inflation. Traditional measures of forecast accuracy indicate that the simple price gap version of the P* model and the money demand model perform best of this group for medium term forecasting.

Keywords: Monetary policy; inflation; forecasting; models. (search for similar items in EconPapers)
JEL-codes: E0 E31 E37 E52 (search for similar items in EconPapers)
Date: 2008-07-12
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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