Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 247: Density-Conditional Forecasts in Dynamic Multivariate Models
Michael K. Andersson (), Stefan Palmqvist () and Daniel F. Waggoner ()
Additional contact information
Michael K. Andersson: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Stefan Palmqvist: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Daniel F. Waggoner: Research Department, Postal: Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta
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
26 pages, September 1, 2010
Full text files
wp247.pdf
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