Forecasting for monetary policy

TL;DR

This paper reviews key issues in monetary policy forecasting, evaluates the Bank of England's inflation forecasts, and emphasizes the importance of forecast evaluation despite recent errors.

Contribution

It provides a formal assessment of the Bank of England's inflation forecasts and discusses challenges and evaluation methods in monetary policy forecasting.

Findings

Bank of England's inflation forecasts were accurate relative to benchmarks

Forecast errors have been large recently but still within acceptable bounds

Highlights importance of forecast evaluation in monetary policy

Abstract

This paper discusses three key themes in forecasting for monetary policy highlighted in the Bernanke (2024) review: the challenges in economic forecasting, the conditional nature of central bank forecasts, and the importance of forecast evaluation. In addition, a formal evaluation of the Bank of England's inflation forecasts indicates that, despite the large forecast errors in recent years, they were still accurate relative to common benchmarks.