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Investigating uncertainty in macroeconomic forecasts by stochastic simulation

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  • Debby Lanser

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  • Henk Kranendonk

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    Abstract

    We investigate four sources of uncertainty with CPB’s macroeconomic model SAFFIER: provisional data, exogenous variables, model parameters and residuals of behavioural equations. Uncertainty is an inherent attribute of any forecast. We apply a Monte Carlo simulation technique to calculate standard errors for the short-term and medium-term horizon for GDP and eight other macroeconomic variables. The results demonstrate that the main contribution to the total variance of a medium-term forecast emanates from the uncertainty in the exogenous variables. For the short-term forecast both exogenous variables and provisional data are most relevant.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 112.

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    Date of creation: Sep 2008
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    Handle: RePEc:cpb:discus:112

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    1. Ray Fair, 2002. "Bootstrapping Macroeconometric Models," Yale School of Management Working Papers ysm254, Yale School of Management, revised 01 Aug 2007.
    2. Onatski, Alexei & Williams, Noah, 2002. "Modeling model uncertainty," Working Paper Series 0169, European Central Bank.
    3. Garratt, Anthony & Kevin Lee & M Hashem Pesaran & Yongcheol Shin, 2002. "Forecast Uncertainties In Macroeconometric Modelling: An Application to the UK Economy," Royal Economic Society Annual Conference 2002 82, Royal Economic Society.
    4. Canova, Fabio, 1995. "Sensitivity Analysis and Model Evaluation in Simulated Dynamic General Equilibrium Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 477-501, May.
    5. Nigel Pain & Ray Barrell & Dawn Holland, 2001. "Openness, integration and transition: prospects and policies for economies in transition," NIESR Discussion Papers 165, National Institute of Economic and Social Research.
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    Cited by:
    1. Mihaela SIMIONESCU, 2013. "The Assessment Of Parameter Uncertainty In A Vector Error Correction Model For Romania," Romanian Journal of Economics, Institute of National Economy, vol. 37(2(46)), pages 124-134, December.
    2. BRATU SIMIONESCU, Mihaela, 2012. "Two Quantitative Forecasting Methods For Macroeconomic Indicators In Czech Republic," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 3(1), pages 71-87.

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