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Title: The efficiency of the Eurosystem/ECB staff inflation projections: A state-dependent analysis Authors:  Eleonora Granziera - Norges Bank (Norway) [presenting]
Maritta Paloviita - Bank of Finland (Finland)
Pirkka Jalasjoki - Bank of Finland (Finland)
Abstract: The Eurosystem/ECB staff inflation projections are examined to assess whether new information is efficiently incorporated in the forecasting process. We use a confidential dataset of the ECB staff macroeconomic quarterly projections and determine if there was an efficient use of information by testing whether the forecast error is predictable, given the state of the economy. Specifically, we investigate whether systematic errors are related to the behaviour of inflation when the forecasts are made and distinguish whether inflation is above or below target at the time the forecasts are made. Our analysis suggests that the forecast errors are unbiased on average; however, there is evidence of state dependence. In particular, we find that the ECB tends to overpredict (underpredict) inflation when inflation is below (above) target. This result holds even after accounting for errors in the external assumptions.