Density-Conditional Forecasts in Dynamic Multivariate Models

Michael K. Andersson (), Stefan Palmqvist () and Daniel Waggoner
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Michael K. Andersson: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Stefan Palmqvist: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 247, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: When generating conditional forecasts in dynamic models it is common to impose the conditions as restrictions on future structural shocks. However, these conditional forecasts often ignore that there may be uncertainty about the future development of the restricted variables. Our paper therefore proposes a generalization such that the conditions can be given as the full distribution of the restricted variables. We demonstrate, in two empirical applications, that ignoring the uncertainty about the conditions implies that the distributions of the unrestricted variables are too narrow.

Keywords: Central Bank; Market Expectation; Restrictions; Uncertainty (search for similar items in EconPapers)
JEL-codes: C53 E37 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-09-01
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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