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Uncertainty and Disagreement in Forecasting Inflation: Evidence from the Laboratory (Revised version of CentER DP 2011-053)

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  • Pfajfar, D.
  • Zakelj, B.

    (Tilburg University, Center for Economic Research)

Abstract

Abstract: This paper compares the behavior of subjects' uncertainty in different monetary policy environments when forecasting inflation in the laboratory. We find that inflation targeting produces lower uncertainty and higher accuracy of interval forecasts than inflation forecast targeting. We also establish several stylized facts about the behavior of individual uncertainty, aggregate distribution of forecasts, and disagreement between individuals. We find that the average confidence interval is the measure that performs best in forecasting inflation uncertainty. Subjects correctly perceive the underlying inflation uncertainty in only 60% of cases and tend to report asymmetric confidence intervals, perceiving higher uncertainty with respect to inflation increases.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2012-072.

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Date of creation: 2012
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Handle: RePEc:dgr:kubcen:2012072

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Web page: http://center.uvt.nl

Related research

Keywords: Laboratory Experiments; Confidence Bounds; New Keynesian Model; Inflation Expectations;

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