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Inflation and output growth uncertainty in individual survey expectations

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Author Info

  • Paloviita, Maritta

    ()
    (Bank of Finland Research)

  • Viren, Matti

    ()
    (Bank of Finland Research and University of Turku)

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    Abstract

    This paper studies uncertainty using the ECB Survey of Professional Forecasters’ data. We consider both inflation and real GDP growth forecasts at the micro level and explore forecast uncertainty using two alternative measures, i.e. conventional standard deviation of individual point forecasts and the median values of individual forecasters’ uncertainty, which are based on subjective probability distributions of survey respondents. Our analysis indicates that individual inflation uncertainty is closely related to the output growth uncertainty. In forming expectations, individual forecasters seem to behave according to an uncertainty-augmented hybrid specification of the New Keynesian Phillips curve. We also find evidence that inflation uncertainty has a negative impact on economic activity by decreasing output growth and increasing inflation and lowering the price sensitiveness of aggregate supply.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1237.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 37/2012.

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    Length: 19 pages
    Date of creation: 19 Dec 2012
    Date of revision:
    Publication status: Forthcoming as Paloviita, Maritta and Matti Viren, 'Inflation and output growth uncertainty in individual survey expectations' in Empirica.
    Handle: RePEc:hhs:bofrdp:2012_037

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: Forecasting; Survey data; Expectations; Phillips curve;

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    References

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    1. Pesaran, M. Hashem & Weale, Martin, 2006. "Survey Expectations," Handbook of Economic Forecasting, Elsevier.
    2. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
    3. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2012. "Disagreement Among Forecasters in G7 Countries," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1081-1096, November.
    4. Gianna Boero & Jeremy Smith & KennethF. Wallis, 2008. "Uncertainty and Disagreement in Economic Prediction: The Bank of England Survey of External Forecasters," Economic Journal, Royal Economic Society, vol. 118(530), pages 1107-1127, 07.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2012. "Has Economic Policy Uncertainty Hampered the Recovery?," Book Chapters, in: Lee E. Ohanian & John B. Taylor & Ian J. Wright (ed.), Government Policies and the Delayed Economic Recovery, chapter 3 Hoover Institution, Stanford University.
    6. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2007. "The ECB survey of professional forecasters (SPF) – A review after eight years’ experience," Occasional Paper Series 59, European Central Bank.
    7. Tillmann, Peter, 2010. "The Fed's perceived Phillips curve: Evidence from individual FOMC forecasts," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1008-1013, December.
    8. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
    9. Geoff Kenny & Thomas Kostka & Federico Masera, 2011. "How Informative are the Subjective Density Forecasts of Macroeconomists?," CESifo Working Paper Series 3671, CESifo Group Munich.
    10. Kortelainen, Mika & Paloviita, Maritta & Viren, Matti, 2011. "Observed inflation forecasts and the new Keynesian macro model," Economics Letters, Elsevier, vol. 112(1), pages 88-90, July.
    11. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
    12. Cristina Conflitti, 2011. "Measuring Uncertainty and Disagreement in the European Survey of Professional Forecasters," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2011(2), pages 69-103.
    13. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 70(5), pages 1022-27, December.
    14. Ralf Fendel & Eliza M. Lis & Jan‐Christoph Rülke, 2011. "Do professional forecasters believe in the Phillips curve? evidence from the G7 countries," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(2), pages 268-287, March.
    15. Keith Sill, 2012. "Measuring economic uncertainty using the Survey of Professional Forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 16-27.
    16. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2010. "An Evaluation of the Growth and Unemployment Forecasts in the ECB Survey of Professional Forecasters," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2010(2), pages 1-28.
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