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Setting the Operational Framework for Producing Inflation Forecasts

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Author Info

  • Turgut Kisinbay
  • Eric Parrado
  • Rodolfo Maino
  • Jorge Iván Canales Kriljenko

Abstract

How should a central bank organize itself to produce the best possible inflation forecast? This paper discusses elements for building a comprehensive platform for an inflation forecasting framework. It describes the exercise of forecasting inflation as a production process, which induces a strict discipline concerning data management, information gathering, the use of a suitable statistical apparatus, and the exercise of sound communication strategies to reinforce reputation and credibility. It becomes critical how a central bank organizes itself to produce relevant macroeconomic forecasts, with special consideration to product design, the essential requirements needed in the forecasting process, and key related organizational issues. In addition, the paper proposes to factor into the process the authorities' policy responses to previous inflation forecasts in order to be consistent with the spirit of the inflation targeting framework.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/122.

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Length: 47
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/122

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Related research

Keywords: Central bank organization; Inflation targeting; Central bank policy; Data collection; Data analysis; Forecasting models;

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References

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  1. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
  2. Loungani, Prakash, 2001. "How accurate are private sector forecasts? Cross-country evidence from consensus forecasts of output growth," International Journal of Forecasting, Elsevier, vol. 17(3), pages 419-432.
  3. Douglas Laxton & Alasdair Scott & David Rose, 2009. "Developing a Structured Forecasting and Policy Analysis System to Support Inflation-Forecast Targeting (IFT)," IMF Working Papers 09/65, International Monetary Fund.
  4. Lyziak, Tomasz, 2003. "Consumer inflation expectations in Poland," Working Paper Series 0287, European Central Bank.
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  7. Tiff Macklem, 2001. "A New Measure of Core Inflation," Bank of Canada Review, Bank of Canada, vol. 2001(Autumn), pages 3-12.
  8. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 653-686.
  9. Massimiliano Marcellino & James H. Stock & Mark W. Watson, . "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc.
  11. Oller, Lars-Erik & Barot, Bharat, 2000. "The accuracy of European growth and inflation forecasts," International Journal of Forecasting, Elsevier, vol. 16(3), pages 293-315.
  12. Michael Artis & Massimiliano Marcellino, 2001. "Fiscal forecasting: The track record of the IMF, OECD and EC," Econometrics Journal, Royal Economic Society, vol. 4(1), pages S20-S36.
  13. Forsells, Magnus & Kenny, Geoff, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the euro area," Working Paper Series 0163, European Central Bank.
  14. Gilda Fernandez & Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float: Operational Aspects of Moving Towards Exchange Rate Flexibility," IMF Working Papers 04/126, International Monetary Fund.
  15. Scott Roger & Mark R. Stone, 2005. "On Target? The International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  16. Charles A.E. Goodhart, 2001. "Monetary transmission lags and the formulation of the policy decision on interest rates," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 165-186.
  17. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," BORRADORES DE ECONOMIA 003603, BANCO DE LA REPÚBLICA.
  18. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  19. Hunt, Benjamin & Rose, David & Scott, Alasdair, 2000. "The core model of the Reserve Bank of New Zealand's Forecasting and Policy System," Economic Modelling, Elsevier, vol. 17(2), pages 247-274, April.
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Citations

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Cited by:
  1. Héctor Cuasquer & René Maldonado, 2011. "Microfinanzas y microcrédito en Latinoamérica," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 179-193, Octubre-d.
  2. Douglas Laxton & Andrew Berg & Philippe D Karam, 2006. "A Practical Model-Based Approach to Monetary Policy Analysis--Overview," IMF Working Papers 06/80, International Monetary Fund.
  3. International Monetary Fund, 2010. "Weathering the Global Storm: The Benefits of Monetary Policy Reform in the LA5 Countries," IMF Working Papers 10/292, International Monetary Fund.
  4. Marcel Peter & Scott Roger & Geoffrey Heenan, 2006. "Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications," IMF Working Papers 06/278, International Monetary Fund.
  5. Jorge Iván Canales-Kriljenko & Luis I. Jácome H. & Ali Alichi & Ivan Luis de Oliveira Lima, 2011. "Sorteando la tormenta mundial: beneficios de la reforma de política monetaria en cinco países latinoamericanos," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 194-226, Octubre-d.

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