Kiel Working Papers, Kiel Institute for World Economics
No 1153:
Macroeconomic Interval Forecasting: The Case of Assessing the Risk of Deflation in Germany
Dora Borbély and Carsten-Patrick Meier
Abstract: This paper proposes an approach for estimating the
uncertainty associated with model-based macroeconomic forecasts. We argue
that estimated forecast intervals should account for the uncertainty
arising from selecting the specification of an empirical forecasting model
from the sample data. To allow this uncertainty to be considered
systematically, we formalize a model selection procedure that specifies the
lag structure of a model and accounts for aberrant observations. The
procedure can be used to bootstrap the complete model selection process
when estimating forecast intervals. We apply the procedure to assess the
risk of deflationary developments occurring in Germany over the next four
years.
Keywords: model selection, forecasting prediction intervals, bootstrapping, deflation; (follow links to similar papers)
JEL-Codes: C5; E0; E5; (follow links to similar papers)
17 pages, March 2003
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