Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246122 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 1/2021
Publisher: 
Norges Bank, Oslo
Abstract: 
We test for bias and efficiency of the ECB inflation forecasts using a confidential dataset of ECB macroeconomic quarterly projections. We investigate whether the properties of the forecasts depend on the level of inflation, by distinguishing whether the inflation observed by the ECB at the time of forecasting is above or below the target. The forecasts are unbiased and efficient on average, however there is evidence of state dependence. In particular, the ECB tends to overpredict (underpredict) inflation at intermediate forecast horizons when inflation is below (above) target. The magnitude of the bias is larger when inflation is above the target. These results hold even after accounting for errors in the external assumptions. We also find evidence of inefficiency, in the form of underreaction to news, but only when inflation is above the target. Our findings bear important implications for the ECB forecasting process and ultimately for its communication strategy.
Subjects: 
Forecast Evaluation
Forecast Efficiency
Inflation Forecasts
Central Bank Communication
JEL: 
C12
C22
C53
E31
E52
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-189-1
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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