Too Good to be True? The (In)credibility of the UK Inflation Fan Charts
This paper presents some simple methods to estimate the probability that realized inflation will breach a given inflation target range over a specified period, based on the Bank of England?s RPIX inflation forecasting model and the Monetary Policy Committee?s forecasts of the parameters on which this model is built. Illustrative results for plausible target ranges over the period up to 04Q1 indicate that these probabilities are low, if not very low, and strongly suggest that the Bank?s model over-estimates inflation risk.
|Date of creation:||09 2004|
|Date of revision:||11 Jan 2004|
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- Wallis, Kenneth F., 2003.
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- Wallis, Kenneth F., 2001. "Chi-squared tests of interval and density forecasts and the Bank of England's fan charts," Working Paper Series 0083, European Central Bank.
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- Kenneth F. Wallis, 2004. "An Assessment of Bank of England and National Institute Inflation Forecast Uncertainties," National Institute Economic Review, National Institute of Economic and Social Research, vol. 189(1), pages 64-71, July.
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