How We Missed the Inflation Surge: An Anatomy of Post-2020 Inflation Forecast Errors
IMF Working Papers, May 12, 2023
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- How We Missed the Inflation Surge: An Anatomy of Post-2020 Inflation Forecast Errors
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Bibliographic details
- Authors: Christoffer Koch, Diaa Noureldin
- Published: May 12, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400243233.001
Scope and data
- Analysis period: 2021Q1-2022Q3.
- Forecasts used: core and headline inflation forecasts from the International Monetary Fund World Economic Outlook.
- Coverage: a large group of advanced and emerging market economies.
- Publication metadata:
- Pages: 38
- Volume: 2023
- Issue: 102
- Series: Working Paper No. 2023/102
- DOI: https://doi.org/10.5089/9798400243233.001
- Stock No: WPIEA2023102
- ISBN: 9798400243233
- ISSN: 1018-5941
Main empirical findings
- Forecast bias:
- Evidence of forecast bias that worsened initially and then subsided towards the end of the sample.
- Forecast rigidity:
- Evidence of forecast oversmoothing indicating rigidity in forecast revision in the face of incoming information.
- Ex post explanatory factors for core inflation forecast errors in 2021:
- A stronger-than-anticipated demand recovery.
- Demand-induced pressures on supply chains.
- The demand shift from services to goods at the onset of the pandemic.
- Labor market tightness.
- Ex ante correlation:
- The size of the COVID-19 fiscal stimulus packages announced by different governments in 2020 correlates positively with core inflation forecast errors in advanced economies.
- The positive correlation hints at potential forecast inefficiency, with a caveat that the result hinges on the outcomes of a few, albeit large, economies.
Thematic subjects and keywords
- Subject areas: COVID-19, Economic forecasting, Fiscal policy, Fiscal stimulus, Health, Inflation, Labor, Labor markets, Prices.
- Keywords: core inflation error, COVID-19, Fiscal policy, Fiscal stimulus, Forecast error, forecasts of core and headline inflation, Global, headline inflation from the International Monetary Fund, IMF working paper 2023/102, Inflation, Inflation surge, Labor markets.
Source: IMF Working Papers — "How We Missed the Inflation Surge: An Anatomy of Post-2020 Inflation Forecast Errors", Christoffer Koch and Diaa Noureldin, May 12, 2023.
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