Inflation and Output Growth Uncertainty in Individual Survey Expectations
24 Pages Posted: 16 Feb 2013 Last revised: 31 Oct 2014
Date Written: December 19, 2012
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.
Keywords: forecasting, survey data, expectations, Phillips curve
JEL Classification: C53, E37, E31
Suggested Citation: Suggested Citation