On the accuracy of private forecasts of inflation and growth in Brazil

Abstract

This study evaluates the accuracy of the private-sector forecasts of inflation and growth in industrial production collected by the Brazilian Central Bank (BCB). In addition to examining directional accuracy, we utilize as benchmarks both naïve and univariate autoregressive moving-average (ARMA) forecast and test rationality under flexible loss to allow for the possibility of asymmetric loss. Our analysis yields three important findings: First, the private forecasts are directionally accurate. Second, they are superior to the naïve forecasts and are either superior or as accurate as the ARMA forecasts. Third, the private forecasts are generally rational under either asymmetric or symmetric loss. Such findings point to the success of the BCB in anchoring private expectations. Given their importance as monetary policy inputs, we conclude that private inflation and growth forecasts are of value to the BCB for policymaking.