Is Inflation Target Announced by Bank Indonesia the Most Accurate Inflation Forecast?
This article investigates whether following Bank Indonesia’s explicit inflation targets (forward-looking) is a more accurate method of predicting inflation rate in Indonesia than forecast methods utilizing past information of macroeconomic data (backward-looking). The analysis is conducted by perfor...
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| Format: | Article |
| Language: | English |
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Universitas Indonesia
2016-08-01
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| Series: | Economics and Finance in Indonesia |
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| Online Access: | http://efi.ui.ac.id/index.php/efi/article/view/539 |
| Summary: | This article investigates whether following Bank Indonesia’s explicit inflation targets (forward-looking) is a more accurate method of predicting inflation rate in Indonesia than forecast methods utilizing past information of macroeconomic data (backward-looking). The analysis is conducted by performing naive, univariate, and multivariate time-series models with an out-of-sample forecast evaluation period of January 2014–December 2016. It is found that the backward-looking approach outperforms the forward-looking approach at all forecast horizons, indicating that Bank Indonesia still does not succeed to anchor inflation expectation towards the desired level. |
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| ISSN: | 0126-155X 2442-9260 |