Inflation Forecast Errors in the Czech Republic: Evidence from a Panel of Institutions

Professional forecasters in the Czech Republic made large average absolute and relative errors in inflation forecasts between 1998 and 2007. However, these errors were, in a majority of institutions, exclusively due to inaccurate forecast of exchange rate development. Although forecasters learned from their past forecast errors, the exchange rate forecast errors persisted. Nevertheless, some of the forecasting institutions, such as the Czech central bank, exhibited a bias in their inflation forecasts even after accounting for the errors in exchange rate forecasts.