Probability Forecasting and Central Bank Accountability

Abstract:     
The paper studies probability forecasts of inflation and GDP by monetary authorities. Such forecasts can contribute to central bank transparency and reputation building. Problems with principal and agent make the usual argument for using scoring rules to motivate probability forecasts confused; however, their use to evaluate forecasts remains valid. Public comparison of forecasting results with a "shadow" committee is helpful to promote reputation building and thus serves the motivational role. The Brier score and its Yates-partition of the Bank of England's forecasts are compared with those of a group of non-bank experts.

Keywords: Central banks, Accountability, Probability Forecasting, Brier score, Yates' Partition

JEL Classification: E58,C8

Accepted Paper Series