Investigating uncertainty in macroeconomic forecasts by stochastic simulation

Debby Lanser () and Henk Kranendonk ()

CPB Discussion Papers from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Uncertainty is an inherent attribute of any forecast. In this paper, we investigate four sources of uncertainty with CPB’s macroeconomic model SAFFIER: provisional data, exogenous variables, model parameters and residuals of behavioural equations. We apply a Monte Carlo simulation technique to calculate standard errors for the short-term and medium-term horizon for GDP and eight other macroeconomic variables. The results demonstrate that the main contribution to the total variance of a medium-term forecast, emanates from the uncertainty in the exogenous variables. For the short-term forecast both exogenous variables and provisional data are most relevant.

Keywords: Monte Carlo simulation; Macro economic forecasting; Model uncertainty (search for similar items in EconPapers)
JEL-codes: C15 C53 E20 E27 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-ecm, nep-for, nep-mac and nep-ore
Date: 2008-09
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Persistent link: http://EconPapers.repec.org/RePEc:cpb:discus:112

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