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On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model information

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Abstract

Institutions which publish macroeconomic forecasts usually do not rely on a single econometric model to generate their forecasts. The combination of judgements with information from different models complicates the problem of characterizing the predictive density. This article proposes a parametric approach to construct the joint and marginal densities of macroeconomic forecasting errors, combining judgements with sample and model information. We assume that the relevant variables are linear combinations of latent independent two-piece normal variables. The baseline point forecasts are interpreted as the mode of the joint distribution, which has the convenient feature of being invariant to judgments on the balance of risks.

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Authors and Affiliations

  1. Banco de Portugal, Av. Almirante Reis, 71, 1150-012, Lisbon, Portugal

    Maximiano Pinheiro & Paulo Soares Esteves

  2. ISEG-Technical University of Lisbon, Rua do Quelhas, 6, 1200-781, Lisbon, Portugal

    Maximiano Pinheiro

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  1. Maximiano Pinheiro
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  2. Paulo Soares Esteves
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Correspondence to Maximiano Pinheiro.

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Pinheiro, M., Esteves, P.S. On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model information. Empir Econ 42, 639–665 (2012). https://doi.org/10.1007/s00181-010-0447-7

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  • DOI: https://doi.org/10.1007/s00181-010-0447-7

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