Normetrics forecast evaluation
20 March 2007
Comparison of forecasts for Norwegian inflation in 2006.
Monetary Policy Report 1/07 contains a comparison of projections for the Norwegian
underlying rate of inflation in the year 2006. The comparison shows that Norges Bank’s
forecasts made in Inflation Reports 1/05-3/06 were sometimes a little lower, sometimes a
little higher than the average of Norwegian forecasters. However, starting in March
2006, Norges Bank’s projections are closer to the actual rate of inflation in 2006 than the
average forecast.
The figure below reproduces Norges Bank’s projections (black line) and the
average of Norwegian forecasters (red line). In addition, the blue graph shows the
sequence of forecasts from the two Normetrics forecasting models, AIR and NAM.
The figure shows that Normetrics forecasts were never any worse than the
average forecasts, and most vintages of Normetrics forecasts are considerably better. All
Normetrics forecasts produced in 2005 also improve on Norges Bank’s forecasts (June
2005 is the exception). In the period Nov. 05-Feb. 06 the gap between Normetrics and
Norges Bank actually widens---as Norges Bank’s forecast were adjusted upward, away
from what eventually became the actual inflation rate of 0.8%. However, the IR 2/06
forecast is accurate, while the Normetric forecast stays at 1% until Sept. 06.
2.5
Average of other forecasts
(than Norges Bank's)
2.0
Norges Bank
1.5
Normetrics
1.0
Actual
0.5
2005
2006
Jul. 05
Jul. 06
Figure 1 Forecasts for annual rise in CPI-AET published at different times. Percent.
Monthy figures, Jan 05 – Dec 06. Source: Norges Bank, Monetary Policy Report 1/07,
Evaluation of projections for 2006 and Normetrics
1