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Inflation Reports and Models; How Well Do Central Banks Really Write?

Author

Listed:
  • Ales Bulir
  • Jaromír Hurník
  • Katerina Smidkova

Abstract

We offer a novel methodology for assessing the quality of inflation reports. In contrast to the existing literature, which mostly evaluates the formal quality of these reports, we evaluate their economic content by comparing inflation factors reported by the central banks with ex-post model-identified factors. Regarding the former, we use verbal analysis and coding of inflation reports to describe inflation factors communicated by central banks in real time. Regarding the latter, we use reduced-form, new Keynesian models and revised data to approximate the true inflation factors. Positive correlations indicate that the reported inflation factors were similar to the true, model-identified ones and hence mark high-quality inflation reports. Although central bank reports on average identify inflation factors correctly, the degree of forward-looking reporting varies across factors, time, and countries.

Suggested Citation

  • Ales Bulir & Jaromír Hurník & Katerina Smidkova, 2014. "Inflation Reports and Models; How Well Do Central Banks Really Write?," IMF Working Papers 14/91, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/91
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    References listed on IDEAS

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    1. Peter N. Ireland, 2007. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1851-1882, December.
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    Cited by:

    1. repec:prg:jnlpep:v:2017:y:2017:i:3:id:614:p:286-299 is not listed on IDEAS
    2. Magdalena Szyszko, . "Central Bank’s Inflation Forecast and Expectations. A Comparative Analysis," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-14.

    More about this item

    Keywords

    Central banks; Economic models; Monetary policy; Keynesian economics; Inflation targeting; Transparency; Kalman filter; monetary policy communication; inflation; central bank; aggregate demand; Forecasting and Simulation; Forecasting and Simulation;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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