Is the BoE inflation fan flawed?

Kevin Dowd at Nottingham certainly thinks so. In an article in the March 2007 Journal of Macroeconomics, Too good to be true? The (In)credibility of the UK inflation fan charts, he argues that the Bank of England's model overestimates inflation risk:

This paper presents some simple methods to estimate the probability that realized inflation will breach a given inflation target range over a specified period, based on the Bank of England’s RPIX inflation forecasting model and the Monetary Policy Committee’s forecasts of the parameters on which this model is built. Illustrative results for plausible target ranges over the period up to 04Q1 indicate that these probabilities are low, if not very low, and strongly suggest that the Bank’s model over-estimates inflation risk.

Here is an ungated version.

I have always found it a tad ludicrous that the Bank's central CPI projection invariably manages to revert to the inflation target two year's out. Implied message: current rates are always appropriate. Could they not either use the fan to indicate upside or downside medium-term risks to their outlook, or as some other central banks do, publish their internal interest rate forecasts rather than just talk about implied market forecasts? Like Dowd, I'm not a great fan of the fan.

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