Inflation Volatility and Forecast Accuracy
This paper examines the statistical properties of inflation in a sample of inflation targeting and non inflation targeting countries. First, it analyses the time varying volatility of a measure of the persistent component of inflation. Based on this measure, inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) have experienced a relatively more pronounced fall in the volatility of inflation than non inflation targeting countries (Austria, France, Germany, Japan and the United States) But it is hard to say whether inflation is more volatile in inflation targeting or non inflation targeting countries. Second, it analyses whether inflation became easier to forecast after the introduction of inflation targeting. It finds that inflation became easier to forecast in both inflation targeting and non inflation targeting countries; the improvement was greater for the former group but forecast errors remain smaller for the latter group.