Is forecasting inflation easier under inflation targeting?

Abstract

This paper investigates whether monetary-policy regime changes affect the success of forecasting inflation. The forecasting performances of some linear and nonlinear univariate models are analyzed for 14 different countries that have adopted inflation-targeting (IT) monetary regimes at some point in their economic history. The results show that forecasting performance is generally superior under an IT monetary regime compared to nonIT (NIT) periods. In more than half of the countries covered in this study, superior forecasting accuracy can be achieved in IT periods regardless of the model used. In contrast, among most of the remaining countries, the results remain ambiguous, and the evidence on the superiority of NIT is limited to very few countries.