Making assumptions about exogenous variables is an important component of the forecasting process. But it is not always easy. Take for example the international oil price for example. It is one of the most important exogenous assumptions in our model and we have to formulate a view of the price over the coming three years.
The high and volatile inflation and interest rates of the 1970s and 1980s are a distant, though painful, memory. Recently, however, inflation targeting has come under increased scrutiny. Many advanced economies have seen inflation either slow down or remain weak, even while economic growth has been strengthening. This has led some to question whether central banks can still target inflation effectively.