Central Bank Communications and Professional Forecasts: Evidence From India

2021 ◽  
pp. 097265272110440
Author(s):  
Ashima Goyal ◽  
Prashant Parab
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Jel Classification ◽  
Inflation Expectations ◽  
Speed Of Adjustment ◽  
Inflation Forecasts ◽  
Monetary Policy Committee ◽  
Reserve Bank ◽  
Policy Statements ◽  
Repo Rate

We analyze the influence of qualitative and quantitative communications of the Reserve Bank of India (RBI) on inflation expectations of professional forecasters and draw out implications for policy. Estimating Carroll-type epidemiological models of expectation formation under information rigidities, we get a large speed of adjustment of professional forecasters’ expectations. Analysis of the determinants of inflation forecasts, inflation surprises, and forecaster disagreement reveals significant influence of quantitative RBI communications in the form of inflation projections. This effect is prominent for shorter-horizon forecasts and after adoption of flexible inflation targeting. Macroeconomic fundamentals like lagged inflation and repo rate also significantly influence inflation forecasts. Choice of words in the RBI monetary policy statements has more impact after October 2016, when the monetary policy committee became the decision-making body. JEL Classification: E31, E52, E58

scholarly journals Evaluation of the Inflation Forecasting Process of the Reserve Bank of India: A Text Analysis Approach

2020 ◽  
Author(s):  
Amrendra Pandey ◽  
Jagadish Shettigar ◽  
Amarnath Bose
Keyword(s):  
Monetary Policy ◽  
Policy Framework ◽  
Quantitative Methodology ◽  
Inflation Forecasts ◽  
Inflation Forecasting ◽  
Monetary Policy Committee ◽  
Reserve Bank ◽  
Policy Statements ◽  
Economic Reality ◽  
Reserve Bank Of India

<div><div><div><p>This study is an attempt to evaluate and interpret the monetary policy statements (MPS) of the Reserve Bank of India (RBI) for the five year period since it started conducting monetary policy meetings every alter- nate month. An important contribution of this paper is the evaluation of the inflation forecasting path of the RBI using information from the state- ments. Both qualitative and quantitative methodology has been adopted to study and evaluate the MPS. It helps in understanding processes fol- lowed and information considered while making inflation forecasts. The results clearly indicate that though the RBI examined the high frequency economic indicators in their process of assessment and inflation forecast- ing, their inflation forecasts have been below the mark. Similarly, the monetary policy committee (MPC) could not predict the sharp disinfla- tion following demonetization on 8th November, 2016 resulting in higher real interest rate regime. This shows that the monetary policy governance under the new monetary policy framework of the RBI needs to be revisited to align it with the economic reality of India.</p></div></div></div>

scholarly journals Evaluation of the Inflation Forecasting Process of the Reserve Bank of India: A Text Analysis Approach

2020 ◽  
Author(s):  
Amrendra Pandey ◽  
Jagadish Shettigar ◽  
Amarnath Bose
Keyword(s):  
Monetary Policy ◽  
Policy Framework ◽  
Quantitative Methodology ◽  
Inflation Forecasts ◽  
Inflation Forecasting ◽  
Monetary Policy Committee ◽  
Reserve Bank ◽  
Policy Statements ◽  
Economic Reality ◽  
Reserve Bank Of India

<div><div><div><p>This study is an attempt to evaluate and interpret the monetary policy statements (MPS) of the Reserve Bank of India (RBI) for the five year period since it started conducting monetary policy meetings every alter- nate month. An important contribution of this paper is the evaluation of the inflation forecasting path of the RBI using information from the state- ments. Both qualitative and quantitative methodology has been adopted to study and evaluate the MPS. It helps in understanding processes fol- lowed and information considered while making inflation forecasts. The results clearly indicate that though the RBI examined the high frequency economic indicators in their process of assessment and inflation forecast- ing, their inflation forecasts have been below the mark. Similarly, the monetary policy committee (MPC) could not predict the sharp disinfla- tion following demonetization on 8th November, 2016 resulting in higher real interest rate regime. This shows that the monetary policy governance under the new monetary policy framework of the RBI needs to be revisited to align it with the economic reality of India.</p></div></div></div>

scholarly journals Evaluation of the Inflation Forecasting Process of the Reserve Bank of India: A Text Analysis Approach

SAGE Open ◽  
2021 ◽  
Vol 11 (3) ◽  
pp. 215824402110338
Author(s):  
Amrendra Pandey ◽  
Jagadish Shettigar ◽  
Amarnath Bose
Keyword(s):  
Monetary Policy ◽  
Policy Framework ◽  
Inflation Forecasts ◽  
Inflation Forecasting ◽  
Monetary Policy Committee ◽  
Reserve Bank ◽  
Governance Practices ◽  
Policy Statements ◽  
Research Findings ◽  
Reserve Bank Of India

This study attempts to evaluate the monetary policy of the Reserve Bank of India (RBI) based on an investigation of the policy statements. The analysis based on text mining of the central bank’s monetary policy statements seeks to unravel the information considered by the central bank and the processes followed in making its inflation forecasts. The findings indicate that although the RBI examined high-frequency economic indicators, its inflation forecasts have generally been off the mark. Specifically, the monetary policy committee failed to foresee the sharp disinflation that followed the demonetization announced on November 8, 2016. This failure resulted in a high real interest rate regime that dealt a blow to the economy staggering under the effects of demonetization. Our research findings show that the monetary policy governance practices need to be refined and better aligned to economic realities, particularly under the RBI’s new monetary policy framework.

Do Inflation Expectations Matter for Inflation Forecastability: Evidence from Pakistan

2016 ◽  
Vol 55 (3) ◽  
pp. 211-225 ◽  
Author(s):  
Fayyaz Hussain ◽  
Zafar Hayat
Keyword(s):  
Monetary Policy ◽  
Predictive Ability ◽  
Jel Classification ◽  
Inflation Expectations ◽  
Forecast Performance ◽  
Inflation Forecasts ◽  
Forward Guidance ◽  
Forecasting Performance ◽  
Out Of Sample ◽  
Effectiveness Of Monetary Policy

We empirically investigate if the incorporation of inflation expectations helps improve the forecasting performance of a suite of univariate inflation models. Since inflation forecasts are instrumental to the conduct of an effective monetary policy, any possible improvement in the inflation forecastability may tend to enhance the effectiveness of monetary policy—by providing forward guidance both to the monetary authority and the market to effectively anchor inflation expectations. Our results are robust across specifications of our baseline models, sample sizes and forecast horizons. The introduction of inflation expectations, whether contemporaneously or with a 6-months lead improves the predictive ability—both in-sample and out-of-sample for 6 and 12-month horizons. Deterioration however is observed for a 3- month horizon, which point towards the weak representation of the expectations data for a 3- month horizon. JEL Classification: E31, E37 Keywords: Inflation-expectations, Forecast-performance, Pakistan.

scholarly journals THE INFLUENCE OF DECISIONS ON INCREASING SOCIAL STANDARDS ON MONETARY POLICY

2021 ◽  
Vol 2 (37) ◽  
pp. 37-46
Author(s):  
S. Kolodii ◽  
M. Rudenko ◽  
L. Gariaga ◽  
I. Kochuma ◽  
S. Kolodii
Keyword(s):  
Monetary Policy ◽  
Minimum Wage ◽  
Inflation Targeting ◽  
Jel Classification ◽  
Inflation Expectations ◽  
Good Decision ◽  
Economic Agents ◽  
Social Standards ◽  
The Government ◽  
Fiscal And Monetary Policy

Abstract. Raising social standards is an essential instrument of social policy by the state. However, the decision to raise the minimum wage rather sharply should consider its impact on fiscal and monetary policy. The article aims to study how government decisions on social standards (in particular minimum wages) can influence monetary policy decisions based on inflation targeting. Results of the research. The method of analysis of indicators and consequences of the introduction of inflation targeting in Ukraine, geographical neighbors and countries with similar economies is described. It is determined that the final effect of changes in social standards on inflation depends on the entire transmission mechanism, which includes several interrelated reactions, and maybe stretched over time, depending on both the speed of transmission of the impulse and the specifics of institutional regulation. It is established that the criterion for a dramatic increase in the minimum wage is a significant upward shift of the minimum wage to the average wage ratio curve. In this case, as we have shown, inflation expectations worsen, which modifies somewhat the behaviour of economic agents and is transferred to current inflation rates in the future. Raising social standards is a good decision of the government in order to maintain household incomes. However, to ensure the neutrality of such a decision for fiscal and monetary policy, it needs to be aligned with its objectives and strategies. Keywords: social standards, monetary policy, inflation targeting, minimum wage, GDP, government. JEL Classification Е 600 Formulas: 0; fig.: 3; tabl.: 1; bibl.: 17.

scholarly journals Can inflation forecast and monetary policy path be really useful? The case of the Czech Republic

Equilibrium ◽  
2015 ◽  
Vol 10 (3) ◽  
pp. 9 ◽  
Author(s):  
Magdalena Szyszko ◽  
Karolina Tura
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Qualitative Analysis ◽  
Central Bank ◽  
Quantitative Methods ◽  
Inflation Expectations ◽  
The Czech Republic ◽  
Inflation Forecasts ◽  
National Bank ◽  
Parametric Statistics

Producing and revealing inflation forecast is believed to be the best way of implementing a forward-looking monetary policy. The article focuses on inflation forecast targeting (IFT) at the Czech National Bank (CNB) in terms of its efficiency in shaping consumers’ inflation expectations. The goal of the study is to verify the accuracy of the inflation forecasts, and their influence on inflation expectations. The research is divided into four stages. At the first stage, central bank credibility is examined. At the second stage – accuracy of the inflation forecasts. The next step of the research covers a qualitative analysis of IFT implementation. Finally, the existence of the interdependences of inflation forecast, optimal policy paths and inflation expectations is analyzed. Credibility of the central bank, accuracy of the forecast and decision-making procedures focused on the forecast are the premises for the existence of relationship between forecasts and expectations. The research covers the period from July 2002 – till the end of 2013. Its methodology includes qualitative analysis of decision-making of the CNB, quantitative methods (Kia and Patron formula, MAE forecasts errors, quantification of expectations, non-parametric statistics). The results confirm the existence of interdependences between inflation forecasts and expectations of moderate strength. The preconditions of such interdependences are partially fulfilled. The research opens the field for cross-country comparisons and for quantification of IFT implementation.

Selecting Your Inflation Targeters: Background and Performance of Monetary Policy Committee Members

2011 ◽  
Vol 12 (2) ◽  
pp. 223-238 ◽  
Author(s):  
Etienne Farvaque ◽  
Piotr Stanek ◽  
Hakim Hammadou
Keyword(s):  
Monetary Policy ◽  
Size Effects ◽  
Inflation Targeting ◽  
Economic Cooperation ◽  
Policy Makers ◽  
Monetary Policy Committee ◽  
Monetary Policy Committees ◽  
And Performance ◽  
Policy Committee

Abstract This paper starts by describing the composition of monetary policy committees (MPCs) in inflation-targeting and non-targeting countries. The experience of MPC members on their inflation performance is then compared, opposing inflation targeters with non-targeters. Our sample covers the major Organization for Economic Cooperation and Development countries, in the period 1999-2008. Our results first show that MPCs are different in inflation-targeting (versus non-targeting) countries. They also reveal that policy-makers’ backgrounds influence inflation, and that the influence of MPCs’ experience is much greater in inflation-targeting countries, while size effects are more important for committees that do not target inflation.

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