Calibration and Resolution Diagnostics for Bank of England Density Forecasts

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