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.

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 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.

Central Bank Communication

2019 ◽  
pp. 230-262
Author(s):  
Jakob de Haan ◽  
Jan-Egbert Sturm
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Banks ◽  
Inflation Expectations ◽  
Short Term ◽  
The Public ◽  
Central Bank Communication ◽  
Forward Guidance ◽  
The World ◽  
Future Direction

Many central banks in the world nowadays regard their external communication as an important tool to achieve their goals. This chapter provides an overview of the different ways in which central banks inform the public about the future direction of monetary policy and how successful they have been in recent years. Forward guidance is either part of a monetary policy strategy in which an explicit inflation target is targeted or is part of a strategy that attempts to circumvent the effective lower bound regarding the nominal interest rate. In both cases, forward guidance attempts to influence longer-term interest rates and inflation expectations through the expected future short-term interest rates.

scholarly journals Inflated Expectations: How Government Partisanship Shapes Monetary Policy Bureaucrats’ Inflation Forecasts

2014 ◽  
Vol 3 (2) ◽  
pp. 353-380 ◽  
Author(s):  
Christopher Gandrud ◽  
Cassandra Grafström
Keyword(s):  
Monetary Policy ◽  
Federal Reserve ◽  
Economic Conditions ◽  
Inflation Expectations ◽  
Economic Policies ◽  
Common Rule ◽  
Rule Of Thumb ◽  
Inflation Forecasts ◽  
Left Party ◽  
Actual Policy

Governments’ party identifications can indicate the types of economic policies they are likely to pursue. A common rule of thumb is that left-party governments are expected to pursue policies for lower unemployment, but which may cause inflation. Right-party governments are expected to pursue lower inflation policies. How do these expectations shape the inflation forecasts of monetary policy bureaucrats? If there is a mismatch between the policies, bureaucratsexpectgovernments to implement, and those that theyactuallydo, forecasts will be systematically biased. Using US Federal Reserve Staff’s forecasts we test for executive partisan biases. We find that irrespective of actual policy and economic conditions forecasters systematically overestimate future inflation during left-party presidencies and underestimate future inflation during right-party ones. Our findings suggest that partisan heuristics play an important part in monetary policy bureaucrats’ inflation expectations.

scholarly journals Pakistan’s Monetary Policy: Some Fundamental Issues

2017 ◽  
Vol 56 (1) ◽  
pp. 31-58 ◽  
Author(s):  
Zafar Hayat
Keyword(s):  
Monetary Policy ◽  
Conflicts Of Interest ◽  
Policy Decision ◽  
Policy Formulation ◽  
Central Banking ◽  
Jel Classification ◽  
Price Stability ◽  
Inflation Expectations ◽  
Academic Qualification ◽  
Institutional Capacity Building

Over the last three decades, the landmark transformation of central banks from secrecy to openness and transparency has significantly enhanced their performance to successfully anchor inflation expectations and achieve price stability. The extent of such a transformation of the State Bank of Pakistan (SBP), especially in terms of statutory objectives, monetary policy mandate, conflicts of interest, disclosures, and dissemination of effective public economic information is assessed vis-à-vis the current popular central banking practices. The assessment indicates that the SBP is yet to be transformed to be able to achieve price stability which is a cornerstone for the achievement of sustainable economic growth. On the statutory front, such a transformation requires amending the SBP Act 1956, in line with the statutes for the best monetary policy frameworks by; (1) making price stability as the overriding objective of the SBP; (2) putting in place a clear mechanism for its accountability against price stability, consistent inflation targets, and; (3) elimination of the cushion for government‘s involvement with the monetary policy decision making processes. Some of the other areas like, institutional capacity building of the SBP, in terms of the relevance and level of the academic qualification, research profiles, and experiences of the Board, higher as well as lower tier management need special attention. Such transformations may not only enhance assimilation, creation, sharing, and funnelling of existing as well as new knowledge into monetary policy formulation, but may help change the static mindset at the SBP, hence allowing the institution to flourish. JEL Classification: E5, E52, E58 Keywords: Statutory Objectives, Conflicts of Interest, Disclosures, SBP

Analyse der Prognoseeigenschaften von ifo-Konjunkturindikatoren unter Echtzeitbedingungen / The Forecasting Performance of ifo-indicators Under Real-time Conditions

2007 ◽  
Vol 227 (1) ◽  
Author(s):  
Gerit Vogt
Keyword(s):  
Real Time ◽  
German Economy ◽  
Climate Index ◽  
Model Structure ◽  
Var Models ◽  
Time Data ◽  
Variable Model ◽  
Forecast Performance ◽  
Forecasting Performance ◽  
Out Of Sample

SummaryIn recent years some papers have been published that deal with the forecasting performance of indicators for the German economy. The real-time aspect, however, was largely neglected. This article analyses the information content of some ifo indicators (the business climate index for the manufacturing sector and its components, the current business situation and business expectations) to predict the German index of production. The analysis is based on cross correlations, Granger causality tests and different out-of-sample forecasts, generated by subset VAR models. First, the out-of-sample forecasts are made, as in conventional studies, with the latest available data and fixed model structure. Afterwards, the out-of-sample indicator properties are analysed in real-time, i.e. with real-time data and variable model structure. In general the indicator properties become worse under real-time conditions. The indicator-based VAR models are not able to beat the forecast performance of a pure autoregressive model for forecast horizons of one and three month. But for forecast horizons of six, nine and twelve months, the indicators seem to be useful in predicting the index of production.

scholarly journals Inflation Forecasts Versus Shaping Inflation Expectations. Comparative Analysis

2015 ◽  
Vol 18 (4) ◽  
pp. 139-156 ◽  
Author(s):  
Magdalena Szyszko
Keyword(s):  
Monetary Policy ◽  
Inflation Expectations ◽  
Measures Of Association ◽  
Inflation Forecasts ◽  
Inflation Forecasting ◽  
Public Expectations ◽  
Starting Point ◽  
National Bank ◽  
Central Bankers

This article jointly analyzes inflation expectations of consumers and inflation forecasts. Its starting point is the predominant role of expectations in monetary policy. This is crucial market information in the decision-making process of the central bankers as it may show the actual future inflation. On the other hand, the central bank wants to influence expectations in order to facilitate achieving the main goals of monetary policy. Inflation forecasting is a tool for shaping public expectations. In the research, covering four central banks (the National Bank of Hungary, National Bank of Poland, the Czech National Bank, Sveriges Riksbank), the author analyzes the interdependencies of inflation forecasts and inflation expectations of consumers. Data on expectations are derived from the surveys and quantified. Then non-parametric measures of association are calculated. The results confirm the hypothesis on the existence of such relationships. The strength of this interdependence varies among countries, from weak to strong. The study opens the field for further discussions on strengthening this relationship.

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.

Predictability of Return Volatility Across Different Emerging Capital Markets: Evidence from Asia

2017 ◽  
Vol 6 (2) ◽  
pp. 157-177 ◽  
Author(s):  
Thushari N. Vidanage ◽  
Fabrizio Carmignani ◽  
Tarlok Singh
Keyword(s):  
Econometric Model ◽  
Investment Decision ◽  
Jel Classification ◽  
Policy Formation ◽  
Return Volatility ◽  
Investment Decision Making ◽  
Forecasting Performance ◽  
Out Of Sample ◽  
Egarch Model ◽  
Emerging Capital Markets

The importance of return volatility forecasts in policy formation and investment decision-making in emerging countries is growing considerably. However, from an operational perspective, there is no consensus in the literature on which econometric model has the best forecasting performance. To shed new light on this issue, this article compares forecasting models for a selected group of emerging Asian economies: India, Malaysia, Pakistan, Sri Lanka, Singapore and Thailand. Model’s performance is tested using both in-sample and out-of-sample forecasting methods. It is found that a relatively simple asymmetric EGARCH model clearly outperforms other models. JEL Classification: G12, G17

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