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A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area

Author

Listed:
  • Rich, Robert W.

    (Federal Reserve Bank of Cleveland)

  • Tracy, Joseph

    (Federal Reserve Bank of Dallas)

Abstract

This paper examines point and density forecasts of real GDP growth, inflation and unemployment from the European Central Bank’s Survey of Professional Forecasters. We present individual uncertainty measures and introduce individual point- and density-based measures of disagreement. The data indicate substantial heterogeneity and persistence in respondents’ uncertainty and disagreement, with uncertainty associated with prominent respondent effects and disagreement associated with prominent time effects. We also examine the co-movement between uncertainty and disagreement and find an economically insignificant relationship that is robust to changes in the volatility of the forecasting environment. This provides further evidence that disagreement is not a reliable proxy for uncertainty.

Suggested Citation

  • Rich, Robert W. & Tracy, Joseph, 2018. "A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area," Working Papers (Old Series) 1813, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1813
    DOI: 10.26509/frbc-wp-201813
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    References listed on IDEAS

    as
    1. Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866-907.
    2. repec:wly:emetrp:v:86:y:2018:i:3:p:1031-1065 is not listed on IDEAS
    3. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    4. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May.
    5. Joshua Abel & Robert Rich & Joseph Song & Joseph Tracy, 2016. "The Measurement and Behavior of Uncertainty: Evidence from the ECB Survey of Professional Forecasters," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(3), pages 533-550, April.
    6. Arroyo, Javier & Maté, Carlos, 2009. "Forecasting histogram time series with k-nearest neighbours methods," International Journal of Forecasting, Elsevier, vol. 25(1), pages 192-207.
    7. Kajal Lahiri & Xuguang Sheng, 2010. "Measuring forecast uncertainty by disagreement: The missing link," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 514-538.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    disagreement; uncertainty; point forecasts; density forecasts; heterogeneity; ECB Survey of Professional Forecasters;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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