Main Article Content
Research background: Most of the modern central banks (CBs) acknowledge the role of economic agents’ expectations in monetary policy. To shape these expectations and to over-come the lags occurrence, CBs produce and reveal macroeconomic forecast and declare that it is the input into their deliberations and monetary policy adjustments. This is how central banks implement inflation forecast targeting. The formal assessments of actual forecast importance in central banks’ decisions is not presented in the literature — to the best author’s knowledge.
Purpose of the article: The paper is of methodological nature. It presents the index that compares inflation forecast importance in the central banks decisions. The elaboration of such index is the main goal of the paper. The index is tested empirically for Czechia and Sweden.
Methods: Comparably to other research presenting the tools that approximate some qualitative variables, the methodological part of the paper offers the description of the factors covered by the index with their justification and point attribution. The index is suitable to assess CBs decision’s accordance with the forecast produced under constant rate assumption as well as under endogenous interest rates. It is designed to cover low quality data as the time series on the central path of the forecast are not always accessible. In this cases only the relation of the forecast to the inflation target is revealed on the fan charts.
Findings & Value added: The index elaboration and its calculation for Czechia and Sweden is presented in the paper. It thus contributes to the literature on ex post assessment of the central bank’s actions. This formalized assessment opens the field for making further con-clusions on inflation forecast targeting implementations and possible impact of the forecast on the economic agents' expectations.
Bernanke, B., Laubach, T., Mishkin, F. S., &. Posen, A. S. (2001). Inflation targeting: lessons from the international experience. Princeton: Princeton University Press.
Bini-Smaghi, L., & Gros, D. (2001). Is the ECB sufficiently accountable and transparent?. European Network of Economic Policy Research Institutes Working Paper, 7.
Calvo, G. (1983). Staggered prices in utility-maximizing frameworks. Journal of Monetary Economics, 12. doi: 10.1016/0304-3932(83)90060-0.
Caroll, C. D. (2003). Macroeconomic expectations of households and professional forecasters. Quarterly Journal of Economics, 118 (1). doi: 10.1162/003355 30360535207.
Dias, F., Duarte, C., & Rua, A. (2010). Inflation expectations in the Euro area: are the consumers rational?. Review of World Economics, 146 (3). doi: 10.1007/ s10290-010-0058-6.
Eijffinger, S. C., & Geraats, P. M. (2006). How transparent are central banks?. European Journal of Political Economy, 22(1). doi: 10.1016/j.ejpoleco. 2005.09.013.
Forsells, M., & Kenny, G. (2004). The rationality of consumers’ inflation expectations: survey-based evidence for the Euro area. Journal of Business Cycle Measurement and Analysis, 1(1).
Fry, M., Mahadeva, L., Roger, S., & Sterne, G. (2000). Key issues in the choice of a monetary policy framework. In L. Mahadeva & G. Sterne (Eds.). Monetary policy frameworks in a global context. London: Routledge.
Galí, J. (2008). Monetary Policy, Inflation, and the Business Cycle, An Introduction to the New Keynesian Framework, Princeton: Princeton University Press.
Goodfriend, M. (2007). How the world achieved the consensus on monetary policy. Journal of Economic Perspective, 21(4). doi: 10.1257/jep.21.4.47.
Goodhart, Ch. A. E., & Bin Lim, W. (2011). Interest rate forecast: a pathology. International Journal of Central Banking, 6.
Łyziak, T. (2003). Consumer inflation expectations in Poland. European Central Bank Working Paper Series, 287.
Mitchell, J., & Weale, M. (2007). The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey. Discussion Paper Series 1: Economic Studies. Deutsche Bundesbank, 19.
Svensson, L. E. O. (1997). Inflation forecast targeting: implementing and monitoring inflation targets. European Economic Review, 41(6). doi: 10.1016/S0014-2921(96)00055-4.
Svensson, L. E. O. (2002). Inflation targeting: should it be modeled as an instrument rule or a targeting rule?. European Economic Review, 46. doi: 10.1016/S0014-2921(01)00212-4.
Szyszko, M. (2011). The interdependences of central bank’s forecasts and economic agents inflation expectations. Empirical study. National Bank of Poland Working Paper Series, 105.
Szyszko, M. (2015). Inflation forecasts versus shaping inflation expectations. Comparative analysis. Comparative Economic Research. Central and Eastern Europe, 18(4). doi:10.1515/cer-2015-0033.
Szyszko, M. (2017). Central bank’s inflation forecast and expectations. A comparative analysis. Prague Economic Papers, 26(3). doi: 10.18267/j.pep.614.
Woodford, M. (2003). Interest and prices. Foundations of theory of monetary policy. Princeton: Princeton University Press.
Woodford, M. (2012). Forecast targeting as a monetary policy strategy: policy rules in practice. In E. F. Koeing, R. Leeson & G. A. Kahn (Eds.). The Taylor Rule and the Transformation of Monetary Policy. Stanford: Hoover Institution Press Publication.