Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors

RePEc Short ID: pcl55
ORCID iD: 0000-0002-4985-1709

Clark, Todd E.; McCracken, Michael W.; Mertens, Elmar

doi:10.20955/wp.2017.026

Working Paper

Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors

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; prediction;

JEL Classification: C32; C53; E47;

https://doi.org/10.20955/wp.2017.026

Status: Published in Review of Economics and Statistics