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Incorporating judgement in fan charts

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  • Pär Österholm

Abstract

Within a decision-making group, such as the monetary-policy committee of a central bank, group members often hold differing views about the future of key economic variables. Such differences of opinion can be thought of as reflecting differing sets of judgement. This paper suggests modelling each agent's judgement as one scenario in a macroeconomic model. Each judgement set has a specific dynamic impact on the system, and accordingly, a particular predictive density - or fan chart - associated with it. A weighted linear combination of the predictive densities yields a final predictive density that correctly reflects the uncertainty perceived by the agents generating the forecast. In a model-based environment, this framework allows judgement to be incorporated into fan charts in a formalised manner.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2006-39.

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Date of creation: 2006
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Handle: RePEc:fip:fedgfe:2006-39

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Keywords: Economic forecasting ; Statistical methods ; Monetary policy;

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Cited by:
  1. Ohlsson, Henry, 2011. "The legacy of the Swedish gift and inheritance tax, 1884–2004," European Review of Economic History, Cambridge University Press, vol. 15(03), pages 539-569, December.
  2. P&aauml;r �sterholm & Jeromin Zettelmeyer, 2008. "The Effect of External Conditions on Growth in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 595-623, December.
  3. S�ren Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.
  4. Österholm, Pär, 2012. "The limited usefulness of macroeconomic Bayesian VARs when estimating the probability of a US recession," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 76-86.
  5. Franziska Ohnsorge & Yevgeniya, 2011. "Forecasting growth in eastern Europe and central Asia," Working Papers 137, European Bank for Reconstruction and Development, Office of the Chief Economist.

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