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Constructing Forecast Confidence Bands During the Financial Crisis

Kevin Clinton, Marianne Johnson, Huigang Chen, Ondra Kamenik and Douglas Laxton ()

No 09/214, IMF Working Papers from International Monetary Fund

Abstract: We derive forecast confidence bands using a Global Projection Model covering the United States, the euro area, and Japan. In the model, the price of oil is a stochastic process, interest rates have a zero floor, and bank lending tightening affects the United States. To calculate confidence intervals that respect the zero interest rate floor, we employ Latin hypercube sampling. Derived confidence bands suggest non-negligible risks that U.S. interest rates might stay near zero for an extended period, and that severe credit conditions might persist.

Keywords: Economic models; European Union; Economic forecasting; Credit restraint; Bank credit; Inflation targeting; Monetary policy; Interest rates; Japan; Oil prices; United States; forecasting and simulation, forecast confidence bands, inflation, equation, confidence interval, confidence intervals, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
Date: 2009-09-01
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Handle: RePEc:imf:imfwpa:09/214