Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/295738 
Year of Publication: 
2024
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 4/2024
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We test for state-dependent bias in the European Central Bank's inflation projections. We show that the ECB tends to underpredict when the observed inflation rate at the time of forecasting is higher than an estimated threshold of 1.8%. The bias is most pronounced at intermediate forecasting horizons. This suggests that inflation is projected to revert towards the target too quickly. These results cannot be fully explained by the persistence embedded in the forecasting models nor by errors in the exogenous assumptions on interest rates, exchange rates or oil prices. The state-dependent bias may be consistent with the aim of managing inflation expectations, as published forecasts play a central role in the ECB's monetary policy communication strategy.
Subjects: 
Inflation Forecasts
Forecast Evaluation
ECB
Central Bank Communication
JEL: 
C12
C22
C53
E31
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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