On the Accuracy of Analysts' Forecasts of Inflation in an Emerging Market Economy

The Czech National Bank conducts a monthly survey to collect one-and three-year-ahead domestic and foreign analysts' forecasts of inflation. We ask whether these forecasts are accurate by utilizing, as benchmarks, efficient forecasts from an autoregressive moving average (ARMA) model. We find that the analysts' and ARMA forecasts, while directionally accurate and free of systematic bias, fail to accurately replicate the variability in the actual change series for certain periods. The one-year-ahead domestic and foreign analysts' forecasts are both efficient, since they embody useful information above and beyond that contained in the ARMA forecast. As for the three-year-ahead horizon, the domestic analysts' and ARMA forecasts contain similar information, while the foreign analysts' forecasts lacks the predictive information contained in the ARMA forecast. Our findings further indicate that the one-and three-year-ahead domestic analysts' forecasts embody useful information above and beyond that contained in the foreign analysts' forecasts. We conclude by putting our findings into a broader perspective.