Evaluating the Bank of England Density Forecasts of Inflation
Economic Journal, 2004, vol. 114, issue 498, 844-866
We consider evaluating the UK Monetary Policy Committee's inflation density forecasts using probability integral transform goodness-of-fit tests. These tests evaluate the whole forecast density. We also consider whether the probabilities assigned to inflation being in certain ranges are well calibrated, where the ranges are chosen to be those of particular relevance to the MPC, given its remit of maintaining inflation rates in a band. Finally, we discuss the decision-based approach to forecast evaluation in relation to the MPC forecasts. Copyright 2004 Royal Economic Society.
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