Why and How to Assess Inflation-Target Fulfillment
AbstractThe ex post analysis of inflation-target fulfillment plays an important role in the inflation-targeting framework. The major benefits of ex post analysis are threefold. First, it improves forecast accuracy. Knowledge of the main sources of previous forecast inaccuracies helps to better understand the current state of the economy and prevents a central bank from producing systematically biased forecasts. Second, it elucidates the abilities and limitations of forecasts used in central-bank decision making. Third, it enhances monetary-policy transparency and credibility.The primary aim of the paper is to propose a methodological framework for assessing inflation-target fulfillment based on partial simulations, as applied in the Czech National Bank. In order to demonstrate the applicability of this framework, the authors analyze the performance of the bank between 2002 and 2006. They show that inflation targeting in this period might have been negatively affected by biased variables describing external developments.
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Bibliographic InfoArticle provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.
Volume (Year): 57 (2007)
Issue (Month): 11-12 (December)
central bank; inflation target; monetary-policy performance;
Other versions of this item:
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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