Working Paper

Macro modelling with many models

Author: By Ida Wolden Bache, James Mitchell, Francesco Ravazzolo and Shaun P. Vahey.
Series: Working Paper
Number: 15/2009

Abstract
We argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as `ensemble modelling'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive densities from a large number of component models. The components allow the modeller to explore a wide range of uncertainties; and the resulting ensemble `integrates out' these uncertainties using time-varying weights on the components. We provide two examples of this modelling strategy: (i) forecasting inflation with a disaggregate ensemble; and (ii) forecasting inflation with an ensemble DSGE.

Published 17 August 2009 14:57

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