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Uncertainty and disagreement in economic prediction : the Bank of England Survey of External Forecasters

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  • Boero,Gianna

    (Department of Economics, University of Warwick)

  • Smith,Jeremy

    (Department of Economics, University of Warwick)

  • Wallis,Kenneth F

    (Department of Economics, University of Warwick)

Abstract

This article introduces a new source of survey data, namely the Bank of England Survey of External Forecasters. The survey collects point and density forecasts of inflation and GDP growth, and hence offers the opportunity of constructing direct measures of uncertainty. We present a simple statistical framework in which to define and interrelate measures of uncertainty and disagreement. The resulting measures are compared with other direct measures of uncertainty, nationally and internationally. A significant, sustained reduction in inflation uncertainty followed the 1997 granting of operational independence to the Bank of England to pursue a monetary policy of inflation targeting.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2006/twerp_811.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 811.

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Length: 32 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wrk:warwec:811

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Keywords: Forecast surveys ; point forecasts ; density forecasts ; uncertainty ; disagreement;

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References

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  1. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  2. Giordani, Paolo & Soderlind, Paul, 2003. "Inflation forecast uncertainty," European Economic Review, Elsevier, vol. 47(6), pages 1037-1059, December.
  3. Das, J.W.M. & Donkers, A.C.D., 1997. "How Certain are Dutch Households about Future Income? An Empirical Analysis," Discussion Paper 1997-38, Tilburg University, Center for Economic Research.
  4. Joseph Engelberg & Charles F. Manski & Jared Williams, 2006. "Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters," NBER Working Papers 11978, National Bureau of Economic Research, Inc.
  5. Giordani, Paolo & Soderlind, Paul, 2006. "Is there evidence of pessimism and doubt in subjective distributions? Implications for the equity premium puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1027-1043, June.
  6. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June.
  7. Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, Department of Economics, University of Kent.
  8. Guiso, Luigi & Parigi, Giuseppe, 1996. "Investment and Demand Uncertainty," CEPR Discussion Papers 1497, C.E.P.R. Discussion Papers.
  9. Kenneth F. Wallis, 2004. "An Assessment of Bank of England and National Institute Inflation Forecast Uncertainties," National Institute Economic Review, National Institute of Economic and Social Research, vol. 189(1), pages 64-71, July.
  10. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers.
  11. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  12. Kenneth F. Wallis, 2005. "Combining Density and Interval Forecasts: A Modest Proposal," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 983-994, December.
  13. Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics 297., Boston College Department of Economics.
  14. Victor Zarnowitz & Louis A. Lambros, 1987. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
  15. Lahiri, Kajal & Teigland, Christie & Zaporowski, Mark, 1988. "Interest Rates and the Subjective Probability Distribution of Inflation Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 233-48, May.
  16. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  17. Michael P. Clements, 2004. "Evaluating the Bank of England Density Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 114(498), pages 844-866, October.
  18. Robert Rich & Joseph Tracy, 2006. "The relationship between expected inflation, disagreement, and uncertainty: evidence from matched point and density forecasts," Staff Reports 253, Federal Reserve Bank of New York.
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