Does forward guidance of the ECB matter for the accuracy of private sector inflation forecasts?

ABSTRACT

Data from the Consensus Economics Forecast Poll is used to analyse whether Forward Guidance of the ECB affected the accuracy of private sector inflation forecasts. Using more than 4,000 data points our results indicate an improvement of private sector inflation forecasts in terms of accuracy after the change in ECB communication towards Forward Guidance.

KEYWORDS:

• Private sector forecasts
• inflation expectations
• forward guidance
• European Central Bank

JEL CLASSIFICATION:

• E31
• E37
• E5

Acknowledgments

This paper represents the authors’ personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank or the European System of Central Banks.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The ESCB publishes its forecasts in March, June, September and December. Due to the overall publishing rhythm, the ECB’s 31 August 2006 forecast was regarded as a September forecast.

² It is not our aim to further evaluate the quality of ECB forecasts in terms of optimality and rationality. Kontogeorgos and Lambrias (2021) provide a comprehensive evaluation of the ECB staff projections.