IDEAS home Printed from https://ideas.repec.org/p/ptu/wpaper/w200319.html
   My bibliography  Save this paper

Uncertainty And Risk Analysis Of Macroeconomic Forecasts: Fan Charts Revisited

Author

Listed:
  • Maximiano Pinheiro

Abstract

Since 1996 the Bank of England (BoE) has been publishing estimates of probability distribution of the future outcomes of inflation and output growth. These density forecasts, known as "fan charts", became very popular with other central banks (e.g. Riskbank) as a tool to quantify uncertainties and risks of conditional point forecasts. The BoE's procedure is mainly a methodology to determine the distribution of a linear combination of independent random variables. In this article we propose an alternative methodology that addresses two issues with the BoE procedure that may affect the estimation of the densities. The first issue relates to a statistical shortcut taken by the BoE that implicitly considers that the mode of the linear combination of random variables is the (same) linear combination of the modes of those variables. The second issue deals with the assumption of independence, which may be restrictive. An illustration of the new methodology is presented and its results compared with the BoE approach.

Suggested Citation

  • Maximiano Pinheiro, 2003. "Uncertainty And Risk Analysis Of Macroeconomic Forecasts: Fan Charts Revisited," Working Papers w200319, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200319
    as

    Download full text from publisher

    File URL: https://www.bportugal.pt/sites/default/files/anexos/papers/wp200319.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maximiano Pinheiro & Paulo Esteves, 2012. "On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model information," Empirical Economics, Springer, vol. 42(3), pages 639-665, June.
    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. Paloviita, Maritta & Mayes, David, 2005. "The use of real-time information in Phillips-curve relationships for the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 415-434, December.
    4. Paloviita, Maritta & Mayes, David, 2005. "The use of real-time information in Phillips-curve relationships for the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 415-434, December.
    5. Bohdan Klos & Ryszard Kokoszczynski & Tomasz Lyziak & Jan Przystupa & Ewa Wrobel, 2005. "Structural Econometric Models in Forecasting Inflation at the National Bank of Poland," NBP Working Papers 31, Narodowy Bank Polski.
    6. Ohnsorge,Franziska Lieselotte & Stocker,Marc & Some,Modeste Y., 2016. "Quantifying uncertainties in global growth forecasts," Policy Research Working Paper Series 7770, The World Bank.
    7. repec:zbw:bofrdp:2004_016 is not listed on IDEAS

    More about this item

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ptu:wpaper:w200319. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: DEE-NTD (email available below). General contact details of provider: https://edirc.repec.org/data/bdpgvpt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.