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The sensitivity of the Scaled Model of Error with respect to the choice of the correlation parameters: A Simulation Study

Rebecca Graziani and Nico Keilman ()
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Rebecca Graziani: Department of Decision Sciences, Bocconi University, Milano
Nico Keilman: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

No 22/2010, Memorandum from Oslo University, Department of Economics

Abstract: The Scaled Model of Error has gained considerable popularity during the past ten years as a device for computing probabilistic population forecasts of the cohort-component type. In this report we investigate how sensitive probabilistic population forecasts produced by means of the Scaled Model of Error are for small changes in the correlation parameters. We consider changes in the correlation of the age-specific fertility forecast error increments across time and age, and changes in the correlation of the age-specific mortality forecast error increments across time, age and sex. Next we analyse the impact of such changes on the forecasts of the Total Fertility Rate and of the Male and Female Life Expectancies respectively. For age specific fertility we find that the correlation across ages has only limited impact on the uncertainty in the Total Fertility Rate. As a consequence, annual numbers of births will be little affected. The autocorrelation in error increments is an important parameter, in particular in the long run. Also, the autocorrelation in error increments for age specific mortality is important. It has a large effect on long run uncertainty in life expectancy values, and hence on the uncertainty around the elderly population in the future. In empirical applications of the Scaled Model of Error, one should give due attention to a correct estimation of these two parameters.

Keywords: Scaled model of error; Stochastic population forecast; Probabilistic cohort component model; Sensitivity; Correlation (search for similar items in EconPapers)
JEL-codes: C15 C49 C63 J40 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2010-11-23
New Economics Papers: this item is included in nep-ecm and nep-for
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Working Paper: The sensitivity of the Scaled Model of Error with respect to the choice of the correlation parameters: A simulation study (2011) Downloads
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