MEASURMENET OF INFLATION FORECAST TARGETING. A PROPOSAL OF METHODOLOGICAL SOLUTION

The paper offers a methodological solution to measuring inflation forecast targeting (IFT). IFT is a central bank's procedure which consists in: producing its own inflation forecast, revealing its results and making interest rates decisions on the basis of the forecast. Inflation forecast targeting is implemented, to some extent, by any central bank implementing inflation targeting framework. It facilitates the forward-looking attitude of the central banker. This forward-lookingness facilitates the expectations shaping and goals achievement. The literature on IFT is broad but it does not cover a concise framework for IFT analysis and measurement. The following contribution fills in this gap. It presents the IFT index. The idea of its elaboration is in line with any monetary policy qualitative aspects measurement: 5 aspects of IFT are distinguished, each of which having a system of points attribution described. These aspects are: forecasting methodology, declaration on the forecast role in the monetary policy, forecast publication, actual central bank's practice and ex post forecast evaluation. Actual central bank's practice covers the assessment of the central bank's decision compatibility with the message of the forecast. The multivariate scheme of assessment which considers central bank's flexibility in the decision making process - guaranteed by the framework of the inflation targeting - is elaborated. The other IFT aspects' evaluations consist in the analysis of the information revealed. The IFT can be divided into two sub indices: one covering only the forecasting system transparency and the other one - for decisions compatibility check. The IFT index and sub-indices are universal in the sense of considering the IFT broadly on the basis of various central bank's practice. The index can be used to cross-country and over time comparison - such an example is also presented in the paper. It also makes it possible to verify the hypotheses on the central banks' consistency in implementing IFT - measured by IFT index - and the central banks' performance.