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Macro modelling with many models

Listed author(s):
  • Ida Wolden Bache

    (Norges Bank (Central Bank of Norway))

  • James Mitchell

    ()

    (National Institute of Economic and Social Research)

  • Francesco Ravazzolo

    (Norges Bank (Central Bank of Norway))

  • Shaun P. Vahey

    (Melbourne Business School)

We argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as `ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive densities from a large number of component models. The components allow the modeller to explore a wide range of uncertainties; and the resulting ensemble `integrates out' these uncertainties using time-varying weights on the components. We provide two examples of this modelling strategy: (i) forecasting inflation with a disaggregate ensemble; and (ii) forecasting inflation with an ensemble DSGE.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2009/WP-200915/
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Paper provided by Norges Bank in its series Working Paper with number 2009/15.

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Length: 26 pages
Date of creation: 17 Aug 2009
Handle: RePEc:bno:worpap:2009_15
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