This paper analyzes factors causing changes in GDP growth forecast risks and
uncertainties, making overall use of the available information on domestic and
overseas financial and real economic conditions. It also proposes a monthly growth
fan chart preparation technique to ensure swift identification of changes in
forecast risks and uncertainties in line with changing economic conditions based on
The paper first calculates economic condition indicators in four areas, domestic
financial and real conditions, and overseas financial and real conditions, using 112
monthly indicators. It then estimates the impacts of specific indicators on the
variance, asymmetry, and kurtosis of the growth probability distribution through a
multiple quantile regression analysis. Finally, it prepares a fan chart by building a
probability density function that reflects the quantile regression estimation results,
using an asymmetric power distribution.
Korea's economic growth forecast risks and uncertainties measured through the
fan chart are found to differ greatly, depending upon economic conditions.
Especially since 2013, the probability of the growth running below the conditional
expected value subject to the Bayesian FAVAR model has been higher than 50%,
which shows that the possibility of the economy being more sluggish than
expected has continued to be high.
The analysis on the influence of specific indicators on the fan chart reveals
that improvements in domestic real conditions increase the possibility of rapid
economic growth by moving the fan chart upward, and improvements in domestic
financial conditions have greater effects of reducing uncertainties by, for instance,
reducing the width of the fan chart. Meanwhile, changes in overseas conditions
are analyzed to have limited impacts, unless they are accompanied by changes in
domestic financial and real conditions. Using the methods of this paper to calculate
changes in the fan chart from October 2016 to December reveals that downside
risks to the economic growth forecast increased as domestic real conditions
deteriorated, although overseas conditions improved somewhat.
The monthly fan chart presented in this paper is expected to provide the
prompt information needed to assess economic developments, adjust the forecast
path, and make monetary policy decisions. To improve its accuracy, it is necessary
to continuously check if specific indicators are adequately reflecting economic
conditions, and to keep looking into the possibility of using additional information