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Term Structure Of Inflation Forecast Uncertainties And Skew Normal Distributions

  • Wojciech Charemza
  • Carlos Diaz
  • Svetlana Makarova

Empirical evaluation of macroeconomic uncertainties and their use for probabilistic forecasting are investigated. A new weighted skew normal distribution which parameters are interpretable in relation to monetary policy outcomes and actions is proposed. This distribution is fitted to recursively obtained forecast errors of monthly and annual inflation for 38 countries. It is found that this distribution fits inflation forecasts errors better than the two-piece normal distribution, which is often used for inflation forecasting. The new type of ‘fan charts’ net of the epistemic (potentially predictable) element is proposed and applied for UK and Poland.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 14/01.

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Date of creation: Jan 2014
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Handle: RePEc:lec:leecon:14/01
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