Inflation Forecasting in Bank Indonesia

Abstract

Since the enactment of the New Central Bank Act in 1999, Bank Indonesia is mandated to pursue a single objective of achieving and maintaining the stability of the rupiah value, primarily meant as low and stable inflation in the environment of a flexible exchange rate system. Such mandate calls for enhancement of capacity and ability to forecast inflation in Bank Indonesia The paper explains how Bank Indonesia forecasts inflation. It also reviews various techniques and pertinent issues in forecasting inflation, ranging from statistical methods, time series, econometric models and leading indicators. Notwithstanding the advanced econometric techniques aided by super computer, the paper reiterates that judgement continue to play an important role in forecasting inflation.