Research Discussion Papers, Bank of Finland
No 37/2012:
Inflation and output growth uncertainty in individual survey expectations
Maritta Paloviita ()
and Matti Viren ()
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; (follow links to similar papers)
JEL-Codes: C53; E31; E37; (follow links to similar papers)
19 pages, December 19, 2012
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- This paper is forthcoming as:
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Paloviita, Maritta and Matti Viren, 'Inflation and output growth uncertainty in individual survey expectations', Empirica.
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