Communicating Uncertainty in Macroeconomic Forecasts

In this paper, I discuss some of the challenges associated with communicating uncertainty around forecasts, particularly important given the context of an uncertain world. I first assess how well NIESR's fan charts have captured the distribution of past forecast errors finding that they have some problems with this. I then examine different ways of constructing fan charts, seeing how different measures of uncertainty can be used to adjust the size of the fan in NIESR forecasts. I conclude that fan charts based on historical forecast errors remain a useful way of communicating the degree of uncertainty around a forecast and argue that the width of the fan can be adjusted based on survey measures of uncertainty to provide a realistic illustration of the potential magnitude of forecast errors. I also discuss how, in principle, the fan chart can be skewed to reflect the balance of risks but argue that there is no convincing way of calibrating such an adjustment.