Density-Conditional Forecasts in Dynamic Multivariate Models

Riksbank Research Paper Series No. 78

Sveriges Riksbank Working Paper Series No. 247

22 Pages Posted: 26 Jan 2011

See all articles by Stefan Palmqvist

Stefan Palmqvist

affiliation not provided to SSRN

Daniel F. Waggoner

Federal Reserve Bank of Atlanta

Michael Andersson

Finansinspektionen

Date Written: September 2010

Abstract

When generating conditional forecasts in dynamic models it is common to impose the conditions as restrictions on future structural shocks. However, these conditional forecasts often ignore that there may be uncertainty about the future development of the restricted variables. Our paper therefore proposes a generalization such that the conditions can be given as the full distribution of the restricted variables. We demonstrate, in two empirical applications, that ignoring the uncertainty about the conditions implies that the distributions of the unrestricted variables are too narrow.

Keywords: Central Bank, Market Expectation, Restrictions, Uncertainty

JEL Classification: C53, E37, E52

Suggested Citation

Palmqvist, Stefan and Waggoner, Daniel F. and Andersson, Michael, Density-Conditional Forecasts in Dynamic Multivariate Models (September 2010). Riksbank Research Paper Series No. 78, Sveriges Riksbank Working Paper Series No. 247, Available at SSRN: https://ssrn.com/abstract=1711253 or http://dx.doi.org/10.2139/ssrn.1711253

Stefan Palmqvist

affiliation not provided to SSRN

Daniel F. Waggoner

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8278 (Phone)

Michael Andersson (Contact Author)

Finansinspektionen ( email )

Box 7821
Brunnsgatan 3
Stockholm
Sweden

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