Prague Economic Papers 2019, 28(3):257-275 | DOI: 10.18267/j.pep.711

Macroeconomic Forecast Relevance in the Central Banks Decisions. The Case of European Economies

Magdalena Szyszko^a, Aleksandra Rutkowska^b

^a Faculty of Finance and Banking, WSB University in Poznan, Poznan, Poland

^b Aleksandra Rutkowska, Faculty of Informatics and Electronic Economy, Poznan University of Economics and Business, Poznan, Poland

We examine central banks' involvement in inflation forecast targeting by means of an index-based analysis and ordered logistic regression. The research encompasses the Bank of England, the Czech National Bank, the National Bank of Poland and the Sveriges Riksbank. They produce conditional or unconditional macroeconomic forecasts. Hence, two paths have been used to examine them. We examine whether the four central banks follow their forecasts to some extent. We have found that the CNB and SR are highly consistent in terms of compatibility of their decisions with the forecasts, timing of decisions, and communication by means of forecasts. The NBP follows its forecast much less consistently, while the BoE ignores it altogether. As some of the results for the BoE and NBP are unambiguous, we remain cautious while interpreting them. This paper contributes to the literature on the empirical evaluation of inflation forecast targeting.

Keywords: inflation forecast targeting, macroeconomic forecasts, central bank decision rules

JEL classification: C25, E52, E58

Received: January 16, 2018; Accepted: September 21, 2018; Published: July 10, 2019  Show citation