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Macro modelling with many models

Ida Wolden Bache, James Mitchell (), Francesco Ravazzolo () and Shaun Vahey
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Ida Wolden Bache: Norges Bank (Central Bank of Norway)

No 2009/15, Working Paper from Norges Bank

Abstract: We argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as `ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive densities from a large number of component models. The components allow the modeller to explore a wide range of uncertainties; and the resulting ensemble `integrates out' these uncertainties using time-varying weights on the components. We provide two examples of this modelling strategy: (i) forecasting inflation with a disaggregate ensemble; and (ii) forecasting inflation with an ensemble DSGE.

Keywords: Ensemble modelling; Forecasting; DSGE models; Density combination (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 E37 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm, nep-for, nep-mac and nep-mon
Date: 2009-08-17
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