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Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)


  • Mukherjee, Deepraj
  • Kemme, David


Countries 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.

Suggested Citation

  • Mukherjee, Deepraj & Kemme, David, 2008. "Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)," MPRA Paper 14952, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14952

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    References listed on IDEAS

    1. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
    2. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters,in: Monetary Policy Rules, pages 157-202 National Bureau of Economic Research, Inc.
    3. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    4. CĂ©line Allard, 2007. "Inflation in Poland; How Much Can Globalization Explain?," IMF Working Papers 07/41, International Monetary Fund.
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    Cited by:

    1. Pierzak, Agnieszka, 2013. "Forecasting inflation in Poland using dynamic factor model," MF Working Papers 17, Ministry of Finance in Poland, revised 01 Aug 2013.

    More about this item


    Monetary policy; inflation; forecasting; models.;

    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

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