Constructing Forecast Confidence Bands During the Financial Crisis

24 Pages Posted: 13 Oct 2009

See all articles by Huigang Chen

Huigang Chen

International Monetary Fund (IMF)

Kevin Clinton

Government of Canada - Bank of Canada

Ondra Kamenik

International Monetary Fund (IMF)

Marianne Johnson

Independent

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Date Written: September 2009

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: Bank credit, Credit restraint, Economic forecasting, Economic models, European Union, Inflation targeting, Interest rates, Japan, Monetary policy, Oil prices, United States

Suggested Citation

Chen, Huigang and Clinton, Kevin and Kamenik, Ondra and Johnson, Marianne and Laxton, Douglas, Constructing Forecast Confidence Bands During the Financial Crisis (September 2009). IMF Working Paper No. 09/214, Available at SSRN: https://ssrn.com/abstract=1486532

Huigang Chen

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kevin Clinton

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
613-782-8766 (Phone)
613-782 7508 (Fax)

Ondra Kamenik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marianne Johnson

Independent ( email )

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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