Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts
AbstractThis paper reviews recently proposed likelihood ratio tests of goodness-of-fit and independence of interval forecasts. It recasts them in the framework of Pearson chi-squared statistics, and extends them to density forecasts. Two further recent developments are also incorporated, namely a more informative decomposition of the goodness-of-fit statistic, and the calculation of exact P-values. Examples considered are the US Survey of Professional Forecasters density forecasts of inflation and the Bank of England fan charts. This first evaluation of the Bank forecasts finds that the fan charts fan out too quickly, and the excessive concern with the upside risks was not justified.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 181.
Date of creation: 29 Aug 2002
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Other versions of this item:
- Wallis, Kenneth F., 2003. "Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts," International Journal of Forecasting, Elsevier, vol. 19(2), pages 165-175.
- Wallis, Kenneth F., 2001. "Chi-squared tests of interval and density forecasts and the Bank of England's fan charts," Working Paper Series 0083, European Central Bank.
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-08 (All new papers)
- NEP-ECM-2002-07-12 (Econometrics)
- NEP-ETS-2002-07-08 (Econometric Time Series)
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