Bayesian fan charts for U.K. inflation: Forecasting and sources of uncertainty in an evolving monetary system
AbstractWe estimate a Bayesian vector autoregression for the U.K. with drifting coefficients and stochastic volatilities. We use it to characterize posterior densities for several objects that are useful for designing and evaluating monetary policy, including local approximations to the mean, persistence, and volatility of inflation. We present diverse sources of uncertainty that impinge on the posterior predictive density for inflation, including model uncertainty, policy drift, structural shifts and other shocks. We use a recently developed minimum entropy method to bring outside information to bear on inflation forecasts. We compare our predictive densities with the Bank of EnglandÂs fan charts. --
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 29 (2005)
Issue (Month): 11 (November)
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Web page: http://www.elsevier.com/locate/jedc
Other versions of this item:
- Cogley, Timothy W. & Morozov, Sergei & Sargent, Thomas J., 2003. "Bayesian fan charts for UK inflation: Forecasting and sources of uncertainty in an evolving monetary system," CFS Working Paper Series 2003/44, Center for Financial Studies (CFS).
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