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Constructing Forecast Confidence Bands During the Financial Crisis

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

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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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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  1. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  2. Tamim Bayoumi & Andrew Swiston, 2009. "Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 353-383, June.
  3. 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.
  4. Christina D. Romer, 1988. "The Great Crash and the Onset of the Great Depression," NBER Working Papers 2639, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
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