Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)
AbstractCountries 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14952.
Date of creation: 12 Jul 2008
Date of revision:
Monetary policy; inflation; forecasting; models.;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-09 (All new papers)
- NEP-CBA-2009-05-09 (Central Banking)
- NEP-FOR-2009-05-09 (Forecasting)
- NEP-MAC-2009-05-09 (Macroeconomics)
- NEP-MON-2009-05-09 (Monetary Economics)
- NEP-TRA-2009-05-09 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Forward-Looking Rules for Monetary Policy,"
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12163, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," Working Papers Central Bank of Chile, Central Bank of Chile 409, Central Bank of Chile.
- CÃƒÂ©line Allard, 2007. "Inflation in Poland," IMF Working Papers 07/41, International Monetary Fund.
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