# **ANNEX A Literature review: Fan chart construction methodology (continued)**

|**Author**|**Country/Variable of**<br>**interest**|**Methodology**|**Variables included**|
|---|---|---|---|
|Banco de Portugal,<br>Economic ( 2015)|Portugal. Inflation, real<br>GDP growth|Fan chart on inflation and real output growth based on subjective<br>assessment of uncertainty and balance of risk.|Inflation, real GDP<br>growth.|
|South African<br>Reserve Bank,<br>MPR (2015)|South Africa. Inflation|Fan chart for inflation and growth in the semi-annual_Monetary Policy_<br>_Review_to communicate the view of the MPC on the distribution of risk<br>around the SARB inflation forecast.|Global demand,<br>commodity prices,<br>domestic supply factors,<br>GDP growth, inflation.|
|Blix and Sellin<br>(1998)|Sweden. Inflation, GDP<br>growth|Methodology to assess uncertainty in GDP growth and inflation using<br>uncertainty and balance of risks extracted from macro risk factors. Allows<br>for subjective assessment of the current risk (relative to historical levels)<br>by introducing judgments or expert views on the current balance of risk in<br>the risk factors.|Inflation rate, GDP<br>growth, other exogenous<br>macro variables.|
||||Inflation, GDP growth,|
|Sveriges Riksbank,<br>MPR (2016)|Sweden. Inflation, GDP<br>growth, repo rate|Baseline forecasts for inflation, Riksbank repo rate, and real GDP growth<br>using Riksbank historical forecast errors.|repo rate, global<br>developments, and Forex<br>variables.|
|Board of Governors<br>of the Federal<br>Reserve System,<br>Feb. 2016|United States. PCE<br>(personal consumption<br>expenditure) inflation,<br>real GDP growth,<br>unemployment|Density of individual forecast series are based on Board members’<br>assessment and judgement of the balance of risk. Histograms of individual<br>series are presented to illustrate the distributions of the forecasts.|Global demand,<br>commodity prices,<br>financial markets index,<br>unemployment, GDP<br>growth, inflation.|
|Britton and Whitley<br>(1998)|United Kingdom.<br>Inflation, real GDP<br>growth|Methodology of U.K. Inflation Report fan chart construction. Fan chart is<br>based on historical forecast errors variance of the Monetary Policy<br>Committee inflation forecast.|Retail Price Index (RPIX)<br>inflation, real GDP<br>growth.|
|Cogley et al. (2003)|United Kingdom.<br>Inflation|BVAR forecast model and minimum entropy method in the construction of<br>a fan chart for inflation forecast. The paper assesses the effect of<br>parameter uncertainty on inflation forecasts and compares the BVAR fan<br>chart with the one produced by the Bank of England. The sample used is<br>from 1957Q1 to 2002Q4.|Output gap, RPIX<br>inflation, 3-month<br>Treasury Bill rate.|
|Wallis (2004)|United Kingdom.<br>Inflation|Evaluates the Bank of England and the National Institute of Economic<br>Social Research density forecasts using data up to 2003Q4.<br>Fan chart for budget balance elements including revenue, expense, and<br>debt. Fan chart is based on historical forecast errors. The revenue|Inflation.|
|U.S. Congressional<br>Budget Office<br>(2007)|United States. Budget<br>balance|historical forecast error is decomposed into cyclical and noncyclical<br>components using OLS regressions of revenue forecast error on a<br>measure of business cycle (output gap). The distribution of the revenue<br>forecast is predicted by making assumptions on the cyclical and non-<br>cyclical components and using the OLS estimation coefficients as weights.|Primary surplus/deficit,<br>debt/GDP, GDP growth.|
|Gürkaynak et al.<br>(2013)|United States. Inflation,<br>real GDP growth,<br>interest rate.|Assesses the performance of Dynamic Stochastic General Equilibrium<br>(DSGE) model forecast against different reduced-form models (RW, AR,<br>VAR, BVAR) out-of-sample from 1992Q1 - 2006Q1.|Real GDP growth,<br>inflation, Fed funds<br>interest rate.|
|Wolters (2015)|United States. Inflation,<br>real GDP growth,<br>interest rate.|Evaluates the accuracy of point and density forecasts from various DSGE<br>models using real-time dataset synchronized with Fed's Greenbook<br>projections. Forecast performance is compared against BVAR-based<br>forecast and the Greenbook projections. Data used covers 1960Q1 -<br>2000Q3.|Real GDP growth,<br>inflation, Fed funds<br>interest rate.<br>Baseline: WEO's forecast|
|Kannan and<br>Elekdag (2009)|World (IMF's_World_<br>_Economic Outlook_,<br>Oct. 2008). Forecast of<br>global real GDP growth|Incorporate market-based and survey-based relevant global growth risk<br>factors (inflation, oil prices, financial conditions) uncertainty information in<br>the construction of global growth fan chart. Forecasted global growth<br>uncertainty is estimated as a scaled function of the historical uncertainty in<br>growth. The scale parameter is a function of risk factors uncertainty. Use<br>of data from 1970 to 2007 to estimate the weight as elasticities by OLS.|<br>of real GDP global<br>growth.<br>Survey-based risk factors:<br>Consensus forecast of<br>inflation oil prices and<br>term spread. Market-<br>based: S&P 500 option<br>prices implied volatility.|

16