Constructing Forecast Confidence Bands During the Financial Crisis

By Kevin Clinton, Marianne Johnson, Huigang Chen, Ondrej Kamenik, Douglas Laxton

September 1, 2009

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Format: Chicago

Kevin Clinton, Marianne Johnson, Huigang Chen, Ondrej Kamenik, and Douglas Laxton. Constructing Forecast Confidence Bands During the Financial Crisis, (USA: International Monetary Fund, 2009) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We derive forecast confidence bands using a Global Projection Model covering the United States, the euro area, and Japan. In the model, the price of oil is a stochastic process, interest rates have a zero floor, and bank lending tightening affects the United States. To calculate confidence intervals that respect the zero interest rate floor, we employ Latin hypercube sampling. Derived confidence bands suggest non-negligible risks that U.S. interest rates might stay near zero for an extended period, and that severe credit conditions might persist.

Subject: Inflation, Oil prices, Output gap, Potential output, Real exchange rates

Keywords: Confidence interval, Interest rate, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/214
Stock No:

WPIEA2009214
ISBN:

9781451873610
ISSN:

1018-5941

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