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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