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Evaluating a Structural Model Forecast: Decomposition Approach
Brázdik, František ; Humplová, Zuzana ; Kopřiva, František
Macroeconomic forecasters are often criticized for a lack of transparency when presenting their forecasts. To deter such criticism, the transparency of the forecasting process should be enhanced by tracing and explaining the effects of data revisions and expert judgment updates on variations in the forecasts. This paper presents a forecast decomposition analysis framework designed to examine the differences between two forecasts generated by a linear structural model. The differences between the forecasts considered can be decomposed into the contributions of various forecast elements, such as the effect of new data or expert judgment. The framework allows us to evaluate the contributions of forecast assumptions in the presence of expert judgment applied in the expected way. The simplest application of this framework examines alternative forecast scenarios with different forecast assumptions. Next, a one-period difference between the forecasts’ initial periods is added to the examination. Finally, a replication of the Inflation Forecast Evaluation presented in Inflation Report III/2013 is created to illustrate the full capabilities of the decomposition framework.
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Economic research bulletin (2008, No.2)
Česká národní banka
This issue of the CNB Research Bulletin is devoted to recent articles further enriching the current scope of theoretical frameworks, in particular dynamic stochastic general equilibrium (DSGE) models. DSGE models reflect the maximisation of the objectives of households and firms. The advantage of this approach is that it summarises the view of economic agents in a theoretically coherent way and imposes discipline on the interpretation of economic behaviour. The first three articles address the issue of optimal monetary policy strategy. Monetary policy rules and subsequent welfare analyses are central in their contribution to the literature. The fourth article deals with long-run trends.
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Inflation targeting: To forecast or to simulate?
Skořepa, Michal ; Kotlán, Viktor
Writers differentiate between two basic ways of assessing future inflation: forecast and simulation. A forecast is the most likely picture of the future. In a forecast, all agents are assumed to behave in the most likely way. A simulation, on the other hand, is the most likely picture of the future if the behaviour of one agent follows a predetermined path or is generated using a selected reaction function.
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Central bank forecasts as a coordination device
Filáček, Jan ; Saxa, Branislav
Do private analysts coordinate their forecasts via central bank forecasts? In this paper, writers examine private and central bank forecasts for the Czech Republic. The evolution of the standard deviation of private forecasts as well as the distance from the central bank’s forecasts are used to study whether a coordination effect exists, how it is influenced by uncertainty, and the effects of changes in central bank communication. The results suggest that private analysts coordinate their forecasts for the interest rate and inflation, while no or limited evidence exists for the exchange rate and GDP growth.
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