TERM STRUCTURE OF INFLATION FORECAST UNCERTAINTIES AND SKEW NORMAL DISTRIBUTIONS

Wojciech Charemza, Carlos Díaz () and Svetlana Makarova

No 14/01, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Empirical evaluation of macroeconomic uncertainties and their use for probabilistic forecasting are investigated. A new weighted skew normal distribution which parameters are interpretable in relation to monetary policy outcomes and actions is proposed. This distribution is fitted to recursively obtained forecast errors of monthly and annual inflation for 38 countries. It is found that this distribution fits inflation forecasts errors better than the two-piece normal distribution, which is often used for inflation forecasting. The new type of ‘fan charts’ net of the epistemic (potentially predictable) element is proposed and applied for UK and Poland.

Keywords: macroeconomic forecasting; inflation; uncertainty; monetary policy; non-normality; density forecasting (search for similar items in EconPapers)
JEL-codes: C54 E37 E52 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Ex-post Inflation Forecast Uncertainty and Skew Normal Distribution: ‘Back from the Future’ Approach (2015)
Working Paper: Inflation fan charts, monetary policy and skew normal distribution (2013)
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