Forecast Uncertainties in Macroeconometric Modelling: An Application to the UK Economy

53 Pages Posted: 28 Mar 2001

See all articles by Anthony Garratt

Anthony Garratt

University of Warwick

Kevin Lee

University of Leicester - Department of Economics

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Yongcheol Shin

Independent

Date Written: October 2000

Abstract

This paper argues that probability forecasts convey information on the uncertainties that surround macroeconomic forecasts in a manner which is straightforward and which is preferable to other alternatives, including the use of confidence intervals. Probability forecasts relating to UK output growth and inflation, obtained using a small macroeconometric model, are presented. We discuss in detail the probability that inflation will fall within the Bank of England?s target range and that recession will be avoided, both as separate single events and jointly. The probability forecasts are also used to provide insights on the interrelatedness of output growth and inflation outcomes at different horizons.

Keywords: Probability forecasting, long run structural VARs, macroeconome-tric modelling, probability forecasts of inflation, interest rates, output growth

JEL Classification: C32, C53, E17

Suggested Citation

Garratt, Anthony and Lee, Kevin C. and Pesaran, M. Hashem and Shin, Yongcheol, Forecast Uncertainties in Macroeconometric Modelling: An Application to the UK Economy (October 2000). Available at SSRN: https://ssrn.com/abstract=263324

Anthony Garratt

University of Warwick ( email )

West Midlands, CV4 7AL
United Kingdom

Kevin C. Lee

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom
0116 252 5348 (Phone)

M. Hashem Pesaran (Contact Author)

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

Yongcheol Shin

Independent

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