Inflation Forecasting Performance and Monetary Policy Decision-Making during 2011-2012

The paper analyses the performance of the inflation forecasting and its role in the monetary policy decision-making at the Bank of Albania over 2011-2012. The study identifies the main challenges facing the projection process, focusing on published inflation versus the forecasts and expectations values and the monetary policy formulation as well. The accuracy of inflation forecasting models in use is studied through a set of statistical indicators and econometric tests. The results for the entire period 2006-2012 are compared to those of the period 2006-2010. The paper concludes that the combination of all forecasts as simple average has consolidated its position as the most accurate forecast at a 6-quarter horizon, whereas in the 4-quarter one the mean of deviations reaches almost the zero value.