Abstract
Our goal is to provide econometric tools that could act as an almost real-time warning-system for central banks working under an Inflation-Targeting Regime. In any given month, it computes the probability that inflation will remain within the tolerance bounds set in advance by the Regime. So, our short-term index gives a proper response time for Central Banks, something long-term indices prevalent in the literature do not provide. Although we showcase Brazil in our application, our method could be broadly applied to other countries that operate under an Inflation-Targeting Regime. Our key statistic is the probability that inflation will be within the bounds in the next 1- 3- and 6-months ahead. It is based on predictive densities obtained from a mixed causal-noncausal autoregressive (MAR) model. We polish the accuracy of our key statistic using the receiver operating characteristic curve (ROC curve), something new in this literature.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
