Fan chart – a tool for NBP’s monetary policy making

Paweł Pońsko and Bartosz Rybaczyk

No 241, NBP Working Papers from Narodowy Bank Polski

Abstract: In this note we describe, in substantial detail, the methodology behind the construction of NBP’s fan chart. This note is meant to help the readers interpret information contained in the mid-term projection, understand the differences in the predicted uncertainty between the projection rounds, and the usefulness of the projection for the monetary policy conduct. We describe the process which leads to the final projection, the methodology of estimation of the variance of the final forecast probability distribution, the method used for quantifying asymmetry of the fan chart and the role the two-piece normal distribution plays in it. Finally, we describe the analysis of the changes in the fan charts between the projection rounds and explain how the narrative associated with the projection is consistent with its assessment of risk.

Keywords: Projection; balance of risk; variance; probability distribution; fan chart (search for similar items in EconPapers)
JEL-codes: E31 E37 E59 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cse, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:241

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