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Macro modelling with many models

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Author Info

  • Ida Wolden Bache

    (Norges Bank (Central Bank of Norway))

  • James Mitchell

    ()
    (National Institute of Economic and Social Research)

  • Francesco Ravazzolo

    (Norges Bank (Central Bank of Norway))

  • Shaun P. Vahey

    (Melbourne Business School)

Abstract

We argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as `ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive densities from a large number of component models. The components allow the modeller to explore a wide range of uncertainties; and the resulting ensemble `integrates out' these uncertainties using time-varying weights on the components. We provide two examples of this modelling strategy: (i) forecasting inflation with a disaggregate ensemble; and (ii) forecasting inflation with an ensemble DSGE.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2009/WP-200915/
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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2009/15.

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Length: 26 pages
Date of creation: 17 Aug 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_15

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Related research

Keywords: Ensemble modelling; Forecasting; DSGE models; Density combination;

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Cited by:
  1. Anthony Garratt & James Mitchell & Shaun P. Vahey & Elizabeth C. Wakerly, 2009. "Real-time Inflation Forecast Densities from Ensemble Phillips Curves," Birkbeck Working Papers in Economics and Finance 0910, Birkbeck, Department of Economics, Mathematics & Statistics.
  2. Francesco Ravazzolo & Shaun P Vahey, 2010. "Measuring Core Inflation in Australia with Disaggregate Ensembles," RBA Annual Conference Volume, in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
  3. Miladin Kovačević & Stojan Stamenković, 2010. "Methodological Basis for Macroeconomic Projections in Countries Exposed to Pressures and Shocks: Example of Serbia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 225-243, June.
  4. Anthony Garratt & James Mitchell & Shaun P. Vahey, 2011. "Measuring Output Gap Nowcast Uncertainty," CAMA Working Papers 2011-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Chris McDonald & Leif Anders Thorsrud, 2011. "Evaluating density forecasts: model combination strategies versus the RBNZ," Reserve Bank of New Zealand Discussion Paper Series DP2011/03, Reserve Bank of New Zealand.

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