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Calibration and Resolution Diagnostics for Bank of England Density Forecasts

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  • John Galbraith

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  • Simon van Norden

    ()

Abstract

This paper applies new diagnostics to the Bank of England’s pioneering density forecasts (fan charts). We compute their implicit probability forecast for annual rates of inflation and output growth that exceed a given threshold (in this case, the target inflation rate and 2.5% respectively.) Unlike earlier work on these forecasts, we measure both their calibration and their resolution, providing both formal tests and graphical interpretations of the results. These results both reinforce earlier evidence on some of the limitations of these forecasts and provide new evidence on their information content. Cet étude développe et applique des nouvelles techniques pour diagnostiquer les prévisions de densité de la Banque d’Angleterre (leur “fan charts”). Nous calculons leurs probabilités implicites pour des taux d’inflation et de croissance du PIB qui dépassent des seuils critiques (soit le taux d’inflation ciblé, soit 2.5%.) En contraste avec des travaux antérieurs sur ces prévisions, nous gaugeons leur calibration aussi bien que leur résolution, en donnant des tests formels et des interprétations graphiques. Les résultats renforcent des conclusions déjà existant sur les limites de ces prévisions et ils donnent de nouvelles évidences sur leurs valeurs ajoutées.

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File URL: http://www.cirano.qc.ca/pdf/publication/2009s-36.pdf
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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2009s-36.

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Date of creation: 01 Aug 2009
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Handle: RePEc:cir:cirwor:2009s-36

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Keywords: calibration; density forecast; probability forecast; resolu; calibration; prévisions de densité; probabilités implicites; résolution.;

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References

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  1. John Galbraith & Simon van Norden, 2008. "The Calibration Of Probabilistic Economic Forecasts," Departmental Working Papers 2008-05, McGill University, Department of Economics.
  2. Dean Croushore & Tom Stark, 1999. "A real-time data set for marcoeconomists: does the data vintage matter?," Working Papers 99-21, Federal Reserve Bank of Philadelphia.
  3. Glenn D. Rudebusch & John C. Williams, 2007. "Forecasting recessions: the puzzle of the enduring power of the yield curve," Working Paper Series 2007-16, Federal Reserve Bank of San Francisco.
  4. John W. Galbraith & Greg Tkacz, 2007. "Forecast Content And Content Horizons For Some Important Macroeconomic Time Series," Departmental Working Papers 2007-01, McGill University, Department of Economics.
  5. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CEPR Discussion Papers 4830, C.E.P.R. Discussion Papers.
  6. Casillas-Olvera, Gabriel & Bessler, David A., 2006. "Probability forecasting and central bank accountability," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 223-234, February.
  7. repec:nsr:niesrd:320 is not listed on IDEAS
  8. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-91, July.
  9. Corradi, Valentina & Swanson, Norman R., 2006. "Predictive Density Evaluation," Handbook of Economic Forecasting, Elsevier.
  10. Michael P. Clements, 2004. "Evaluating the Bank of England Density Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 114(498), pages 844-866, October.
  11. Tilmann Gneiting & Fadoua Balabdaoui & Adrian E. Raftery, 2007. "Probabilistic forecasts, calibration and sharpness," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 69(2), pages 243-268.
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Cited by:
  1. Boero, Gianna & Smith, Jeremy & Wallis, Kenneth F., 2011. "Scoring rules and survey density forecasts," International Journal of Forecasting, Elsevier, vol. 27(2), pages 379-393, April.

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