Inflation Volatility and Forecast Accuracy
AbstractThis paper examines the statistical properties of inflation in a sample of inflation-targeting and non-inflation-targeting countries. First, it analyses the time-varying volatility of a measure of the persistent component of inflation. Based on this measure, inflation-targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) have experienced a relatively more pronounced fall in the volatility of inflation than non-inflation-targeting countries (Austria, France, Germany, Japan and the United States). But it is hard to say whether inflation is more volatile in inflation-targeting or non-inflation-targeting countries. Second, it analyses whether inflation became easier to forecast after the introduction of inflation targeting. It finds that inflation became easier to forecast in both inflation-targeting and non-inflation-targeting countries; the improvement was greater for the former group but forecast errors remain smaller for the latter group.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2009-06.
Date of creation: Oct 2009
Date of revision:
Other versions of this item:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- 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-2009-11-14 (All new papers)
- NEP-CBA-2009-11-14 (Central Banking)
- NEP-FOR-2009-11-14 (Forecasting)
- NEP-MON-2009-11-14 (Monetary Economics)
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