Calibration and Resolution Diagnostics for Bank of England Density Forecasts

27 Pages Posted: 12 Nov 2009

See all articles by John W. Galbraith

John W. Galbraith

McGill University - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Simon van Norden

HEC Montreal - Department of Finance; CIRANO; University of Montreal - Center for Interuniversity Research in Econometrics

Date Written: August 1, 2009

Abstract

This paper applies new diagnostics to the Bank of England’s pioneering density forecasts (fan charts). We compute their implicit probability forecast for annual rates of inflation and output growth that exceed a given threshold (in this case, the target inflation rate and 2.5% respectively.) Unlike earlier work on these forecasts, we measure both their calibration and their resolution, providing both formal tests and graphical interpretations of the results. These results both reinforce earlier evidence on some of the limitations of these forecasts and provide new evidence on their information content.

Keywords: calibration, density forecast, probability forecast, resolution

Suggested Citation

Galbraith, John W. and van Norden, Simon, Calibration and Resolution Diagnostics for Bank of England Density Forecasts (August 1, 2009). CIRANO - Scientific Publications 2009s-36, Available at SSRN: https://ssrn.com/abstract=1504209 or http://dx.doi.org/10.2139/ssrn.1504209

John W. Galbraith (Contact Author)

McGill University - Department of Economics ( email )

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Simon Van Norden

HEC Montreal - Department of Finance ( email )

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