Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors
||Revisions: WP 17-15R|
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.
JEL codes: E37, C53.
Keywords: Stochastic volatility, survey forecasts, fan charts.
Suggested citation: Clark, Todd E., Michael W. McCracken, and Elmar Mertens, 2017. “Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors,” Federal Reserve Bank of Cleveland, Working Paper no. 17-15. https://doi.org/10.26509/frbc-wp-201715.