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Asymmetric density forecasts of inflation and the Bank of England's fan chart

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  • Wallis, Kenneth F.

Abstract

This article examines the statistical issues surrounding the Bank of England's density forecast of inflation and its presentation as a ‘fan chart’. The Bank's preferred central projection is the mode of the density but this underestimates ‘average inflation over a number of years’ in terms of which monetary stability is defined. An alternative fan chart based on central prediction intervals is presented, better reflecting the extent to which the overall balance of risks is on the upside of the inflation target. An ‘all-or-nothing’ loss function is seen to be implicit in the Bank's choices of statistical measures, but is unrealistic.

Suggested Citation

  • Wallis, Kenneth F., 1999. "Asymmetric density forecasts of inflation and the Bank of England's fan chart," National Institute Economic Review, National Institute of Economic and Social Research, vol. 167, pages 106-112, January.
    • Handle: RePEc:cup:nierev:v:167:y:1999:i::p:106-112_11
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    Cited by:

    1. Chao, Shih-Kang & Härdle, Wolfgang K. & Yuan, Ming, 2021. "Factorisable Multitask Quantile Regression," Econometric Theory, Cambridge University Press, vol. 37(4), pages 794-816, August.
    2. James Mitchell & Martin Weale, 2023. "Censored density forecasts: Production and evaluation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 714-734, August.
    3. Goodhart, C. A. E. & Pradhan, Manoj, 2023. "A snapshot of Central Bank (two year) forecasting: a mixed picture," LSE Research Online Documents on Economics 118680, London School of Economics and Political Science, LSE Library.
    4. Romanus, Eduardo E. & Silva, Eugênio & Goldschmidt, Ronaldo R., 2024. "Empirical probabilistic forecasting: An approach solely based on deterministic explanatory variables for the selection of past forecast errors," International Journal of Forecasting, Elsevier, vol. 40(1), pages 184-201.

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