Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 384: Inflation Forecast Uncertainty

Paolo Giordani () and Paul Soderlind ()
Additional contact information
Paolo Giordani: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Paul Soderlind: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: We study the inflation uncertainty reported by individual forecasters in the Survey of Professional Forecasters 1969-2001. Three popular measures of uncertainty built from survey data are analyzed in the context of models for forecasting and asset pricing, and improved estimation methods are suggested. Popular time series models are evaluated for their ability to reproduce survey measures of uncertainty. The results show that disagreement is a better proxy of inflation uncertainty than what previous literature has indicated, and that forecasters underestimate inflation uncertainty. We obtain similar results for output growth uncertainty.

Keywords: survey data; Survey of Professional Forecasters; GDP growth; VAR; T-GARCH

JEL-codes: C53; E31; E37

23 pages, First version: May 17, 2000. Revised: November 6, 2001. Earlier revisions: October 9, 2000, October 9, 2000, November 6, 2001.

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