Fan charts as useful "maps" for an inflation - targeting central bank: an illustration of the Sveriges Riksbankszs method for presenting density forecasts of inflation

Abstract

In this study I illustrate the usefulness of Fan Charts for a central bank and show how they can be used to present its viewpoint on likely paths of future inflation. Exploiting a bivariate unobserved components model, I use the methodology followed by Blix and Sellin (1998) to demonstrate how subjective judgements can be systematically incorporated into model-based forecasts and effectively presented in a graphic manner.