On the directional accuracy of inflation forecasts : evidence from South African survey data
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Date
Authors
Pierdzioch, Christian
Reid, Monique B.
Gupta, Rangan
Journal Title
Journal ISSN
Volume Title
Publisher
Taylor and Francis
Abstract
We study the information content of South African inflation survey data by determining the directional accuracy of both short-term and long-term forecasts. We use relative operating characteristic (ROC) curves, which have been applied in a variety of fields including weather forecasting and radiology, to ascertain the directional accuracy of the forecasts. A ROC curve summarizes the directional accuracy of forecasts by comparing the rate of true signals (sensitivity) with the rate of false signals (one minus specifity). A ROC curve goes beyond market-timing tests widely studied in earlier research as this comparison is carried out for many alternative values of a decision criterion that discriminates between signals (of a rising inflation rate) and nonsignals (of an unchanged or a falling inflation rate). We find consistent evidence that forecasts contain information with respect to the subsequent direction of change of the inflation rate.
Description
Keywords
Relative operating characteristic (ROC), Inflation rate, Forecasting, Directional accuracy, South Africa (SA)
Sustainable Development Goals
Citation
Christian Pierdzioch, Monique B. Reid & Rangan Gupta (2018) On the directional accuracy of inflation forecasts: evidence from South African survey data, Journal of Applied Statistics, 45:5, 884-900, DOI: 10.1080/02664763.2017.1322556.