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Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts

Kenneth Wallis ()

No 181, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper reviews recently proposed likelihood ratio tests of goodness-of-fit and independence of interval forecasts. It recasts them in the framework of Pearson chi-squared statistics, and extends them to density forecasts. Two further recent developments are also incorporated, namely a more informative decomposition of the goodness-of-fit statistic, and the calculation of exact P-values. Examples considered are the US Survey of Professional Forecasters density forecasts of inflation and the Bank of England fan charts. This first evaluation of the Bank forecasts finds that the fan charts fan out too quickly, and the excessive concern with the upside risks was not justified.

New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2002-08-29
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Journal Article: Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts (2003) Downloads
Working Paper: Chi-squared tests of interval and density forecasts and the Bank of England's fan charts (2001) Downloads
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