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Communicating Uncertainty in Macroeconomic Forecasts
- This paper discusses some of the challenges associated with communicating uncertainty around forecasts, particularly important given the context of an uncertain world. It first assesses how well NIESR’s fan charts have captured the distribution of past forecast errors finding that they have some problems with this, before then examining different ways of constructing fan charts, seeing how different measures of uncertainty can be used to adjust the size of the fan in NIESR forecasts. It concludes that fan charts based on historical forecast errors remain a useful way of communicating the degree of uncertainty around a forecast and argue that the width of the fan can be adjusted based on survey measures of uncertainty to provide a realistic illustration of the potential magnitude of forecast errors. Finally, it discusses how, in principle, the fan chart can be skewed to reflect the balance of risks but argue that there is no convincing way of calibrating such an adjustment.
[Main points]
- Fan charts based on historical forecast errors remain a useful way of communicating the degree of uncertainty around a forecast.
- Expecting fan charts to provide an accurate estimate of the entire probability distribution of future outcomes for GDP and inflation was asking too much.
[Main points]
- Fan charts based on historical forecast errors remain a useful way of communicating the degree of uncertainty around a forecast.
- Expecting fan charts to provide an accurate estimate of the entire probability distribution of future outcomes for GDP and inflation was asking too much.
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