Bayesian fan charts for U.K. inflation: forecasting and sources of uncertainty in an evolving monetary system

  • We estimate a Bayesian vector autoregression for the U.K. with drifting coefficients and stochastic volatilities. We use it to characterize posterior densities for several objects that are useful for designing and evaluating monetary policy, including local approximations to the mean, persistence, and volatility of inflation. We present diverse sources of uncertainty that impinge on the posterior predictive density for inflation, including model uncertainty, policy drift, structural shifts and other shocks. We use a recently developed minimum entropy method to bring outside information to bear on inflation forecasts. We compare our predictive densities with the Bank of England's fan charts.

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Author:Timothy Cogley, Sergei Morozov, Thomas J. Sargent
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,44
Series (Serial Number):CFS working paper series (2003, 44)
Document Type:Working Paper
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
GND Keyword:Großbritannien; Währungssystem; Vektoranalysis; Autoregressiver Prozess; Bayes-Verfahren
Issue:This version: October 2003
Page Number:44
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht