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Fan chart – a tool for NBP’s monetary policy making

Author

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  • Paweł Pońsko
  • Bartosz Rybaczyk

Abstract

In this note we describe, in substantial detail, the methodology behind the construction of NBP’s fan chart. This note is meant to help the readers interpret information contained in the mid-term projection, understand the differences in the predicted uncertainty between the projection rounds, and the usefulness of the projection for the monetary policy conduct. We describe the process which leads to the final projection, the methodology of estimation of the variance of the final forecast probability distribution, the method used for quantifying asymmetry of the fan chart and the role the two-piece normal distribution plays in it. Finally, we describe the analysis of the changes in the fan charts between the projection rounds and explain how the narrative associated with the projection is consistent with its assessment of risk.

Suggested Citation

  • Paweł Pońsko & Bartosz Rybaczyk, 2016. "Fan chart – a tool for NBP’s monetary policy making," NBP Working Papers 241, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:241
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    File URL: http://www.nbp.pl/publikacje/materialy_i_studia/241_en.pdf
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    More about this item

    Keywords

    Projection; balance of risk; variance; probability distribution; fan chart;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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