Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors

57 Pages Posted: 27 Sep 2017

See all articles by Todd E. Clark

Todd E. Clark

Federal Reserve Bank of Cleveland

Michael W. McCracken

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Elmar Mertens

Deutsche Bundesbank

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2017

Abstract

We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee’s Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.

Keywords: Stochastic Volatility, Survey Forecasts, Fan Charts

JEL Classification: E37, C53

Suggested Citation

Clark, Todd E. and McCracken, Michael W. and Mertens, Elmar, Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors (September 1, 2017). FRB of Cleveland Working Paper No. 17-15, Available at SSRN: https://ssrn.com/abstract=3042884

Todd E. Clark (Contact Author)

Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States
216-579-2015 (Phone)

Michael W. McCracken

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Elmar Mertens

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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