Analysts’ Inflation Expectations vs Univariate Models of Inflation Forecasting in the Russian Economy

Abstract

This paper analyses the accuracy of analysts’ inflation expectations from the consensus forecast of the Centre of Development Institute of the Higher School of Economics, which is used as a direct forecast of inflation. The consensus forecast is inferior in accuracy to univariate econometric forecasting models on horizons of six to eight quarters and is no more accurate than the model forecasts on shorter horizons. The medium-term expectations of professional forecasters for the Russian economy have been anchored to the Bank of Russia’s target of 4% since 2017. The use of analysts’ inflation expectations does not lead to a significant improvement in the accuracy of the inflation forecast in the Phillips curve framework in the Russian economy over the past five years. Iterative forecasting of inflation via the Phillips curve turns out to be more accurate than direct forecasts, first-order vector autoregression model, or random walk model.