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Incorporating Judgement in Fan Charts

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Author Info
Österholm, Pär () (Department of Economics)

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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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Publisher Info
Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2006:30.

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Length: 36 pages
Date of creation: 20 Nov 2006
Date of revision:
Handle: RePEc:hhs:uunewp:2006_030

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
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Fax: + 46 18 471 14 78
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Related research
Keywords: Forecasts; Predictive density; Linear opinion pool;

Other versions of this item:

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Lars Svensson & Noah Williams, 2005. "Monetary Policy with Model Uncertainty: Distribution Forecast Targeting," NBER Working Papers 11733, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
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    Other versions:
  5. Frank Smets & Raf Wouters, 2004. "Forecasting with a Bayesian DSGE model - an application to the euro area," Working Paper Series 389, European Central Bank. [Downloadable!]
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  6. Ana Maria Herrera & James Hamilton, 2001. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," University of California at San Diego, Economics Working Paper Series 2001-10, Department of Economics, UC San Diego. [Downloadable!]
  7. Diebold, Francis X. & Pauly, Peter, 1990. "The use of prior information in forecast combination," International Journal of Forecasting, Elsevier, vol. 6(4), pages 503-508, December. [Downloadable!] (restricted)
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  8. Kenneth F. Wallis, 2005. "Combining Density and Interval Forecasts: A Modest Proposal," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 983-994, December. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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  11. Bernanke, Ben S & Gertler, Mark & Watson, Mark W, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 287-91, April.
  12. Malin Adolfson & Michael K. Andersson & Jesper Lindé & Mattias Villani & Anders Vredin, 2007. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 111-144, December. [Downloadable!]
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  13. Malin Adolfson & Stefan Laséen & Jesper Lindé & Mattias Villani, 2005. "Are Constant Interest Rate Forecasts Modest Policy Interventions? Evidence from a Dynamic Open-Economy Model," International Finance, Blackwell Publishing, vol. 8(3), pages 509-544, December. [Downloadable!] (restricted)
  14. Lars O. Svensson & Robert J. Tetlow, 2005. "Optimal Policy Projections," NBER Working Papers 11392, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta. [Downloadable!]
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  16. McNees, Stephen K., 1990. "The role of judgment in macroeconomic forecasting accuracy," International Journal of Forecasting, Elsevier, vol. 6(3), pages 287-299, October. [Downloadable!] (restricted)
  17. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670. [Downloadable!]
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    Other versions:
  19. A Garratt & K Lee & M H Pesaran & Yongcheol Shin, 2004. "Forecast Uncertainties in Macroeconomics Modelling: An Application to the UK Economy," ESE Discussion Papers 64, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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  21. Eric Leeper, 2003. "An "Inflation Reports" Report," NBER Working Papers 10089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pär Österholm & Jeromin Zettelmeyer, 2007. "The Effect of External Conditions on Growth in Latin America," IMF Working Papers 07/176, International Monetary Fund. [Downloadable!]
  2. Blomquist, Sören & Christiansen, Vidar, 2007. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," Working Paper Series 2007:7, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Liang, Che-Yuan, 2007. "Is There an Incumbency Advantage or a Cost of Ruling in Proportional Election Systems?," Working Paper Series 2007:28, Uppsala University, Department of Economics. [Downloadable!]
  4. Alexius, Annika & Holmlund, Bertil, 2007. "Monetary Policy and Swedish Unemployment Fluctuations," Working Paper Series 2007:17, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Beechey, Meredith & Österholm, Pär, 2007. "The Rise and Fall of U.S. Inflation Persistence," Working Paper Series 2007:18, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  6. Ohlsson, Henry, 2007. "The legacy of the Swedish gift and inheritance tax, 1884–2004," Working Paper Series 2007:23, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  7. Kjellberg, David & Post, Erik, 2007. "A Critical Look at Measures of Macroeconomic Uncertainty," Working Paper Series 2007:14, Uppsala University, Department of Economics. [Downloadable!]
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