TY - JOUR
T1 - On the rationality and efficiency of inflation forecasts
T2 - evidence from advanced and emerging market economies
AU - Jalles, João Tovar
PY - 2017/4/1
Y1 - 2017/4/1
N2 - This paper provides a full characterization of inflation rate forecasts using the mean values from Consensus Economics for a sample of 78 advanced and emerging economies between 1989 and 2014. It also assesses the performance of inflation rate forecasts around business cycles’ turning points. As expected, that inflation forecasts start to mirror the actual data as the forecast horizon draws to a close, particularly in advanced economies. The mean forecast error is positive and larger than one point when we pool all countries, but this masks inter-group differences. Moreover, we find evidence for biasedness, inefficiency or information rigidities, with a clear tendency for “forecast smoothing”. Accounting for cross-country informational linkages is important: forecasters fail to adjust their inflation forecasts quick enough in response to domestic news and news from abroad. Finally, during recession episodes forecasts generally appear to be inefficient. The same holds true for recoveries.
AB - This paper provides a full characterization of inflation rate forecasts using the mean values from Consensus Economics for a sample of 78 advanced and emerging economies between 1989 and 2014. It also assesses the performance of inflation rate forecasts around business cycles’ turning points. As expected, that inflation forecasts start to mirror the actual data as the forecast horizon draws to a close, particularly in advanced economies. The mean forecast error is positive and larger than one point when we pool all countries, but this masks inter-group differences. Moreover, we find evidence for biasedness, inefficiency or information rigidities, with a clear tendency for “forecast smoothing”. Accounting for cross-country informational linkages is important: forecasters fail to adjust their inflation forecasts quick enough in response to domestic news and news from abroad. Finally, during recession episodes forecasts generally appear to be inefficient. The same holds true for recoveries.
KW - Bias
KW - Efficiency
KW - Forecast comparison
KW - Information rigidity
KW - Recession
KW - Recovery
UR - http://www.scopus.com/inward/record.url?scp=85013335863&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2017.01.007
DO - 10.1016/j.ribaf.2017.01.007
M3 - Article
AN - SCOPUS:85013335863
VL - 40
SP - 175
EP - 189
JO - Research in International Business and Finance
JF - Research in International Business and Finance
SN - 0275-5319
ER -