Using a standard decomposition of forecasts errors into common and idiosyncratic shocks, we show that aggregate forecast uncertainty can be expressed as the disagreement among the forecasters plus the perceived variability of future aggregate shocks. Thus, the reliability of disagreement as a proxy for uncertainty will be determined by the stability of the forecasting environment, and the length of the forecast horizon. Using density forecasts from the Survey of Professional Forecasters, we find direct evidence in support of our hypothesis. Our results support the use of GARCH-type models, rather than the ex post squared error in consensus forecasts, to estimate the ex ante variability of aggregate shocks as a component of aggregate uncertainty.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number
Ifo Working Paper No. 60.
Find related papers by JEL classification: E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.