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Credibility Of Central Banks Inflation Forecasts

Author

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  • Karolina Tura-Gawron

    (Gdansk University of Technology, Gdansk, Poland)

Abstract

Modern monetary policy focuses on credibility and shaping consumers’ inflation expectations. According to the concept of inflation forecast targeting (IFT), inflation forecasts play a crucial role in the instrument rate decision-making process and may be a specific intermediate target. The aim of the study is to analyse the credibility of inflation forecasts published by the central banks of England, Sweden and Norway. The article presents the proposition of an inflation forecast credibility index. The inflation forecasts’ credibility index may be calculated for all types of inflation forecasts made by central banks, which implement an inflation targeting (IT) regime. It consists of three main elements: the accuracy of the forecasts, the similarity of the forecasts and the inflation forecast deviations from the inflation target. The credibility index has been calculated for the inflation forecasts made by central banks of England, Sweden and Norway. The research conducted shows that most of the inflation forecasts published in selected central banks were credible.

Suggested Citation

  • Karolina Tura-Gawron, 2016. "Credibility Of Central Banks Inflation Forecasts," GUT FME Working Paper Series A 37, Faculty of Management and Economics, Gdansk University of Technology.
    • Handle: RePEc:gdk:wpaper:37
    as

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    File URL: https://cdn.files.pg.edu.pl/zie/Strona%20polska/Nauka/Publikacje/Working%20Papers/WP_GUTFME_A_37.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Lars E.O. Svensson & Robert J. Tetlow, 2005. "Optimal Policy Projections," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
    2. Kevin Dowd, 2004. "The Swedish Inflation Fan Charts: An Evaluation of the Riksbank?s Inflation Density Forecasts," Occasional Papers 10, Industrial Economics Division, revised 11 Jan 2004.
    3. Skrove Falch, Nina & Nymoen, Ragnar, 2011. "The accuracy of a forecast targeting central bank," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-36.
    4. Knüppel, Malte & Schultefrankenfeld, Guido, 2008. "How informative are macroeconomic risk forecasts? An examination of the Bank of England's inflation forecasts," Discussion Paper Series 1: Economic Studies 2008,14, Deutsche Bundesbank.
    5. Dowd, Kevin, 2007. "Too good to be true? The (In)credibility of the UK inflation fan charts," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 91-102, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Karolina TURA-GAWRON, 2018. "Inflation Forecast or Forecast(s) Targeting?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 42-56, September.
    2. Karolina Tura-Gawron, 2016. "What Is The Central Bank Effectively Targeting In Practice? Svensson’S Concept Of Inflation Forecast Targeting And Measures Of Inflation Projections-The Experiences Of Selected European Countries," GUT FME Working Paper Series A 38, Faculty of Management and Economics, Gdansk University of Technology, revised Jul 2016.

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    More about this item

    Keywords

    inflation forecasts targeting; inflation forecast; inflation forecast credibility index; inflation expectations;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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