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Comparison of TWI forecast errors: Reserve Bank and other forecasters

By Satish Ranchhod

Abstract

In this paper we compare our projections of the trade-weighted index (TWI) with those of the NZIER and the National Bank of New Zealand. One issue with this kind of analysis is that the Reserve Bank changed the way it generated its exchange rate forecasts in 1997, from an assumption based on relative inflation rates (ie a steady real exchange rate assumption) to an assumption that the exchange rate would gradually return to a long-run equilibrium level. Note that the Reserve Bank does not consider its exchange rate projections as ‘forecasts’ (though we may refer to them as such for convenience), but rather as technical assumptions, reflecting that the exchange rate is notoriously difficult to predict. Executive summary As part of our examination of the Reserve Bank’s forecasting performance, we have examined our quarterly forecasts of the TWI between December 1994 and September 2002. We have also compared our forecasts to Consensus forecasts and to those of the NZIER and the National Bank of New Zealand. The main findings are as follows

Year: 1994
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