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Constructing Forecast Confidence Bands During the Financial Crisis

Author/Editor: Chen, Huigang | Clinton, Kevin | Johnson, Marianne | Kamenik, Ondra | Laxton, Douglas
Authorized for Distribution: September 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,118KB)
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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.
 
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Series: Working Paper No. 09/214
Subject(s): Bank credit | Credit restraint | Economic forecasting | Economic models | European Union | Inflation targeting | Interest rates | Japan | Monetary policy | Oil prices | United States
Author's keyword(s): forecasting and simulation; forecast confidence bands
 
English  
    Published:   September 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009214   Pages:   23
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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