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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. Alexei Onatski & Noah Williams, 2002. "Modeling model uncertainty," Discussion Papers 0203-05, Columbia University, Department of Economics.
    2. 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.
    3. M. Hashem Pesaran, 2000. "Forecast Uncertainties in Macroeconometric Modelling: An Application to the UK Economy," CESifo Working Paper Series 345, CESifo Group Munich.
    4. George Kapetanios, 2000. "Model Selection Uncertainty and Dynamic Models," NIESR Discussion Papers 165, National Institute of Economic and Social Research.
    5. Ray C. Fair, 2003. "Bootstrapping Macroeconometric Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(4), pages 1.
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    Cited by:
    1. 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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