Discussion Paper Series 2010-E-26

Sources of Disagreement in Inflation Forecasts: A Cross-Country Empirical Investigation

Pierre L. Siklos

Central to the conduct of monetary policy is the preparation and evaluation of inflation forecasts. Inflation forecast are, however, not unique. Central banks, professional organizations, international institutions, households and firms also generate forecasts of inflation, among other macroeconomic variables that reflect the expected state of the economy. This paper estimates inflation forecast disagreement for nine economies, five of which target inflation over the 1999-2009 period. I find that central bank transparency tends to increase forecast disagreement. To the extent that this reflects the attention paid to inflation performance this suggests that transparency is beneficial. Also, it appears that inflation forecasts are largely driven by a global component but the impact of this global component on forecast disagreement is mixed.

Keywords: forecast disagreement; central bank transparency; inflation, quantile regression; panel regression

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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