Confidence Intervals Again

Abstract

The results of the use of feedback rules can be shown with confidence intervals over time. Recall from Chapter 5 that the uncertainty about the response of consumers to tax changes could be described with confidence intervals that showed consumers’ likely responses. Of course the consumer responses were uncertainty in the behavioral input to macroeconomic analysis. Here it is the output that is of interest — namely inflation and unemployment.

For a technical discussion of confidence intervals over time see Bar-Shalom (1977). The ellipses in Figure 7.4 and 7.5 are a special case of the more general confidence ellipse that would have axes which are not horizontal and vertical. For a discussion see Thail (1971), p. 134.