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How Informative Are Central Bank Assessments of Macroeconomic Risks?

Author

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  • Malte Knüppel

    (Deutsche Bundesbank)

  • Guido Schultefrankenfeld

    (Deutsche Bundesbank)

Abstract

Many central banks publish regular assessments of the magnitude and balance of risks to the macroeconomic outlook. In this paper, we analyze the statistical properties of the inflation risk assessments that have been published by the Bank of England and the Sveriges Riksbank. In each case, we find no significant evidence of any systematic connection between the ex ante risk assessments and the ex post forecast errors at horizons from zero to eight quarters. These results illustrate the difficult challenges in making accurate real-time assessments of temporal changes to the distribution of forecast errors. JEL Codes

Suggested Citation

  • Malte Knüppel & Guido Schultefrankenfeld, 2012. "How Informative Are Central Bank Assessments of Macroeconomic Risks?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 87-139, September.
    • Handle: RePEc:ijc:ijcjou:y:2012:q:3:a:3
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    Cited by:

    1. Knüppel, Malte & Schultefrankenfeld, Guido, 2019. "Assessing the uncertainty in central banks’ inflation outlooks," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1748-1769.
    2. Schultefrankenfeld Guido, 2013. "Forecast uncertainty and the Bank of England’s interest rate decisions," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(1), pages 1-20, February.
    3. Todd E. Clark & Michael W. McCracken & Elmar Mertens, 2020. "Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors," The Review of Economics and Statistics, MIT Press, vol. 102(1), pages 17-33, March.
    4. Galvão, Ana Beatriz & Garratt, Anthony & Mitchell, James, 2021. "Does judgment improve macroeconomic density forecasts?," International Journal of Forecasting, Elsevier, vol. 37(3), pages 1247-1260.
    5. Galbraith, John W. & van Norden, Simon, 2019. "Asymmetry in unemployment rate forecast errors," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1613-1626.
    6. Geoff Kenny & Thomas Kostka & Federico Masera, 2015. "Density characteristics and density forecast performance: a panel analysis," Empirical Economics, Springer, vol. 48(3), pages 1203-1231, May.
    7. Andrade, P. & Ghysels, E. & Idier, J., 2012. "Tails of Inflation Forecasts and Tales of Monetary Policy," Working papers 407, Banque de France.
    8. Knut Are Aastveit & James Mitchell & Francesco Ravazzolo & Herman van Dijk, 2018. "The Evolution of Forecast Density Combinations in Economics," Tinbergen Institute Discussion Papers 18-069/III, Tinbergen Institute.
    9. Reifschneider, David & Tulip, Peter, 2019. "Gauging the uncertainty of the economic outlook using historical forecasting errors: The Federal Reserve’s approach," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1564-1582.
    10. Berg, Tim O. & Henzel, Steffen R., 2015. "Point and density forecasts for the euro area using Bayesian VARs," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1067-1095.
    11. Juan C. Méndez-Vizcaíno & Alexander Guarin & César Anzola-Bravo & Anderson Grajales-Olarte, 2021. "Characterizing and Communicating the Balance of Risks of Macroeconomic Forecasts: A Predictive Density Approach for Colombia," Borradores de Economia 1178, Banco de la Republica de Colombia.
    12. Ohnsorge,Franziska Lieselotte & Stocker,Marc & Some,Modeste Y., 2016. "Quantifying uncertainties in global growth forecasts," Policy Research Working Paper Series 7770, The World Bank.
    13. Knüppel, Malte, 2018. "Forecast-error-based estimation of forecast uncertainty when the horizon is increased," International Journal of Forecasting, Elsevier, vol. 34(1), pages 105-116.
    14. Tsuchiya, Yoichi, 2022. "Evaluating the European Central Bank’s uncertainty forecasts," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 321-330.
    15. Clements, Michael P., 2018. "Are macroeconomic density forecasts informative?," International Journal of Forecasting, Elsevier, vol. 34(2), pages 181-198.
    16. Yoichi Tsuchiya, 2021. "The value added of the Bank of Japan's range forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(5), pages 817-833, August.
    17. Andrew Binning & Junior Maih, 2016. "Forecast uncertainty in the neighborhood of the effective lower bound: How much asymmetry should we expect?," Working Paper 2016/13, Norges Bank.
    18. G. Kenny, 2014. "Comment," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(4), pages 500-504, October.
    19. Berg, Tim O. & Henzel, Steffen R., 2015. "Point and density forecasts for the euro area using Bayesian VARs," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1067-1095.
    20. David Reifschneider & Peter Tulip, 2017. "Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach," RBA Research Discussion Papers rdp2017-01, Reserve Bank of Australia.

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    More about this item

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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