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The Relationships among Expected Inflation, Disagreement, and Uncertainty: Evidence from Matched Point and Density Forecasts

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  • Robert Rich

    (Federal Reserve Bank of New York)

  • Joseph Tracy

    (Federal Reserve Bank of New York)

Abstract

This paper examines matched point and density forecasts of inflation from the Survey of Professional Forecasters to analyze the relationships among expected inflation, disagreement, and uncertainty. We undertake the empirical analysis within a seemingly unrelated regression framework and derive measures of uncertainty using a decomposition proposed by Wallis (2004, 2005) and by drawing on the concept of entropy. The results offer little evidence that disagreement is a useful proxy for uncertainty and mixed evidence that increases in expected inflation are accompanied by heightened uncertainty. Conversely, we document a quantitatively and statistically significant positive association between disagreement and expected inflation. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Robert Rich & Joseph Tracy, 2010. "The Relationships among Expected Inflation, Disagreement, and Uncertainty: Evidence from Matched Point and Density Forecasts," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 200-207, February.
  • Handle: RePEc:tpr:restat:v:92:y:2010:i:1:p:200-207
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