Forecasting inflation in Romania to improve the monetary policy
Forecasting inflation in Romania to improve the monetary policy

Summary/Abstract: Based on data of inflation forecasts provided quarterly by the National Bank of Romania, forecast intervals were built using the method of historical forecast errors. Forecast intervals were built considering that the forecast error series is normally distributed of zero mean and standard deviation equal to the RMSE (root mean squared error) corresponding to historical forecast errors. The author introduced as a measure of economic state the indicator– relative variance of the phenomenon at a specific time in relation with the variance on the entire time horizon. For Romania, when inflation rates follows an AR (1), She improved the technique of building forecast intervals taking into account the state of the economy in each period for which data were recorded. The author concludes that it is necessary to build forecasts intervals in order to have a measure of predictions uncertainty.

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