DP2499 Inflation Forecast Uncertainty

Author(s): Paul Söderlind
Publication Date: July 2000
Keyword(s): Survey Data, Survey of Professional Forecasters, TGARCH, VAR
JEL(s): C53, E31, E37
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2499

We study the inflation uncertainty reported by individual forecasters in the Survey of Professional Forecasters 1969-1999. Three popular methods of estimating uncertainty from survey data are analysed in the context of models for forecasting and asset pricing. We find that inflation uncertainty fluctuates over time in a way that traditional time series models fail to capture. Instead, uncertainty is highly correlated with the level of inflation, in particular with recent positive inflation surprises. We also find that disagreement among forecasters increases with the inflation rate and causes above-average fluctuations in individual uncertainty.