RESTRICTED FORECASTS AND ECONOMIC TARGET MONITORING - AN APPLICATION TO THE SPANISH CONSUMER PRICE-INDEX

The purpose of this paper is efficiently to incorporate into a univari ate ARIMA model the information contained in alternative forecasts obt ained through an expert opinion, an econometric model, or a set target . This kind of non-sample additional information can be drawn from any set of linear constraints on the future course of the series. The int roduction of uncertainty about these constraints is permitted. The pro blem is solved obtaining the ''restricted forecast'' by employing the logic of Theil's mixed-estimation technique. Formulas for calculating the variance of the restricted forecasts and some inferential procedur es are derived from it. The usefulness of the approach in practical si tuations of forecasting and planning is illustrated by an example base d on CPI target monitoring, a very relevant topic in countries pursuin g inflation targets. (C) Society for Policy Modeling, 1997.