Extracting the Information Shocks from the Bank of England Inflation Density Forecasts
Carlos Díaz ()
No 16/13, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester
This paper shows how to extract the density of the shocks of information perceived by the Bank of England between two consecutive releases of its inflation density forecasts. These densities are used to construct a new measure of ex ante in ex ante inflation uncertainty, and a measure of news incorporation into subsequent forecasts. Also dynamic tests of point forecast optimality is constructed. It is shown that inflation uncertainty as perceived by the Bank was decreasing before the financial crisis, increasing sharply during the period 2008-2011. Since then, uncertainty seems to have stabilized, but it remains still above its pre-crisis levels. Finally, it is shown that forecast optimality is lost at some points during the financial crisis, and that there are more periods of optimal forecasts in long term than in short term forecasting. This could be also interpreted as that short term forecasts are subject to profound revisions.
Keywords: Inflation; density forecast; uncertainty; revisions; optimal forecasts. (search for similar items in EconPapers)
JEL-codes: C22 C53 C63 E31 E37 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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