Colombian paper finds flaws in inflation forecasting

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A working paper, published by the Central Bank of Colombia on February 6, finds that many central banks could improve the accuracy of their short-term inflation forecasts if they incorporate a power transformation into their inflation models.

Héctor Zárate and Angélica Rengifo incorporate CPI data from 19 inflation-targeting countries into a model that uses a Box-Cox power transformation to stabilise the variance of the data. They find this improves the accuracy of inflation forecasts, but the

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