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Constructing Forecast Confidence Bands During the Financial Crisis

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Author Info

  • Kevin Clinton
  • Marianne Johnson
  • Huigang Chen
  • Ondra Kamenik
  • Douglas Laxton

Abstract

We derive forecast confidence bands using a Global Projection Model covering the United States, the euro area, and Japan. In the model, the price of oil is a stochastic process, interest rates have a zero floor, and bank lending tightening affects the United States. To calculate confidence intervals that respect the zero interest rate floor, we employ Latin hypercube sampling. Derived confidence bands suggest non-negligible risks that U.S. interest rates might stay near zero for an extended period, and that severe credit conditions might persist.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/214.

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Length: 23
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/214

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Related research

Keywords: Bank credit; Credit restraint; Economic forecasting; Economic models; European Union; Inflation targeting; Interest rates; Oil prices; inflation; equation; monetary policy; confidence interval; confidence intervals; inflation rate; samples; covariance; rate of inflation; sampling; real interest rate; survey; stochastic processes; forecasting; equations; price level; nominal interest rate; random walk; stochastic process; sampling technique; logarithm; real variables; statistics; rate of change; low rate of inflation; relative price; central tendency; time series; predictions; gaussian distribution; inflation equation; real exchange rates; covariances; annual inflation rate; correlation; numerical integration; probability; empirical estimation; monetary economics; real interest rates; annual inflation;

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References

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  1. Greasley, David & Madsen, Jakob B. & Oxley, Les, 2001. "Income Uncertainty and Consumer Spending during the Great Depression," Explorations in Economic History, Elsevier, vol. 38(2), pages 225-251, April.
  2. Cara S. Lown & Donald P. Morgan & Sonali Rohatgi, 2000. "Listening to loan officers: the impact of commercial credit standards on lending and output," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-16.
  3. Tamim Bayoumi & Andrew Swiston, 2007. "Foreign Entanglements," IMF Working Papers 07/182, International Monetary Fund.
  4. Brigitte Desroches & Marc-André Gosselin, 2004. "Evaluating Threshold Effects in Consumer Sentiment," Southern Economic Journal, Southern Economic Association, vol. 70(4), pages 942-952, April.
  5. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  6. Igor Ermolaev & Michel Juillard & Ioan Carabenciov & Charles Freedman & Douglas Laxton & Ondra Kamenik & Dmitry Korshunov, 2008. "A Small Quarterly Projection Model of the US Economy," IMF Working Papers 08/278, International Monetary Fund.
  7. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 597-624, August.
  8. Cara S. Lown & Donald P. Morgan, 2002. "Credit effects in the monetary mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 217-235.
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Cited by:
  1. 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.

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