Keywords: Forecasts, predictive density, linear opinion pool
Abstract: Within a decision-making group, such as the monetary-policy committee of a central bank,
group members often hold differing views about the future of key economic variables.
Such differences of opinion can be thought of as reflecting differing sets of judgement.
This paper suggests modelling each agent's judgement as one scenario in a macroeconomic model.
Each judgement set has a specific dynamic impact on the system, and accordingly, a particular
predictive density - or fan chart - associated with it. A weighted linear combination of the
predictive densities yields a final predictive density that correctly reflects the uncertainty
perceived by the agents generating the forecast. In a model-based environment, this framework
allows judgement to be incorporated into fan charts in a formalised manner.
Full paper (330 KB PDF)
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Last update: November 29, 2006