**ANNEX A Literature review: Fan chart construction methodology**

|**Author**|**Country/Variable**<br>**of interest**|**Methodology**|**Variables included**|
|---|---|---|---|
|Banco Central do<br>Brasil, Inflation<br>Report, Dec. 2015|Brazil. Inflation,<br>real GDP growth|Asymmetric fan chart based on historical forecast errors.|External and domestic<br>developments: global demand,<br>commodity prices, financial<br>market, and GDP growth.<br>Inflation.|
|Bank of Canada,<br>Monetary Policy<br>Report, Jan. 2016|Canada. Inflation,<br>core inflation|Fan chart based on Bank of Canada forecast errors and<br>survey professional forecast data.|Inflation, real GDP growth.|
|Canada,<br>Parliamentary<br>Budget Office,<br>Aug. 2010|Canada. Budget<br>balance|Uses the procedure proposed by Kannan and Elekdag (2009)<br>to construct the forecast distribution of Canadian Parliament<br>budget projection in 2010.|Real GDP, U.S. growth, U.S.<br>term spread, oil prices, budget<br>deficit.|
|Banco Central de<br>Chile, Monetary<br>Policy Report,<br>Feb. 2015|Chile. Inflation, real<br>GDP|Fan chart based on historical forecast errors and allowing<br>subjective assessment of risk.|Global demand, commodity<br>prices, financial market, GDP<br>growth, inflation.|
|Michal et al.<br>(2014)|Czech Republic.<br>Inflation, real GDP<br>growth, interest<br>rate, exchange rate|BVAR forecast model and minimum distance method in the<br>construction of a fan chart for inflation, real GDP growth, and<br>interest and exchange rate forecasts. Assess the Zero Lower<br>Bound of interest rate effect on the fan chart and propose a<br>test procedure that evaluates the severity of macroeconomic<br>risk factors included in the central bank financial stress and<br>macroeconomic outlook test model. Data are from 1998Q1 -<br>2012Q2.|CPI inflation, real GDP growth,<br>3-month interest rate, nominal<br>CZK/EUR exchange rate.|
|National Bank of<br>Czech Republic|Czech Republic.<br>Inflation, real GDP<br>growth, interest<br>rate|Fan chart based on historical smoothed forecast errors.|Inflation, real GDP growth.|
|||A critique to the Bank of England linear approximation of the|Real GDP growth, inflation,|
|Alvaro and<br>Maximiano (2003)|Euro Area.<br>Inflation, GDP<br>growth|forecast distribution and the independence of risk factors<br>assumptions. Proposes an alternative density to the Two-<br>Piece Normal (TPN) density. Use of VAR for the baseline<br>forecast.|commodity prices index,<br>effective exchange rate, real<br>GDP growth outside the Euro<br>Area.|
|Smets and<br>Wouters (2004)|Euro Area. Many<br>macro variables|Forecasts the baseline using BVAR DSGE model.|Many macro variables including<br>GDP, consumption, investment,<br>employment, and inflation.|
|Reserve Bank of<br>India, Apr. 2016<br>(Banerjee and<br>Das 2011)|India. Inflation, real<br>GDP growth|Fan charts for inflation and GDP growth are constructed based<br>on historical forecast error variances.|Wholesale price index inflation<br>rate, real GDP growth,<br>international investment<br>position, real effective exchange<br>rate, M1 money aggregate.<br>External and domestic|
|Bank of Israel,<br>Monetary Policy<br>Report, H12015|Israel. Inflation,<br>interest rates|Uncertainty results from shocks to endogenous variables<br>whose distribution is based on their past developments.|developments: global demand,<br>commodity prices, financial<br>market index, real GDP growth,<br>inflation.|
|Bank of Japan,<br>Outlook for<br>Economic Activity<br>and Prices, Jan.<br>2016|Japan. Inflation,<br>real GDP growth|Distributions of forecasts are based on the Policy Board<br>members’ assessment of uncertainty and their judgement of<br>the balance of risk associated with their forecasts. The<br>distributions of Board members forecast are presented to<br>illustrate the extent of uncertainty and balance of risk<br>associated with the projections.|Inflation, real GDP growth.|

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