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Title:The relationship between expected inflation, disagreement, and uncertainty: Evidence from matched point and density forecasts PDF Logo
Authors:Rich, Robert
Tracy, Joseph
Issue Date:2006
Series/Report no.:Staff Report, Federal Reserve Bank of New York 253
Abstract:This paper examines matched point and density forecasts of inflation from the Survey of Professional Forecasters to analyze the relationship between expected inflation, disagreement, and uncertainty. We extend previous studies through our data construction and estimation methodology. Specifically, we derive measures of disagreement and uncertainty by using a decomposition proposed in earlier research by Wallis and by applying the concept of entropy from information theory. We also undertake the empirical analysis within a seemingly unrelated regression framework. Our results offer mixed support for the propositions that disagreement is a useful proxy for uncertainty and that increases in expected inflation are accompanied by heightened inflation uncertainty. However, we document a robust, quantitatively and statistically significant positive association between disagreement and expected inflation.
Subjects:Survey of Professional Forecasters, density forecasts, point forecasts, inflation predictions, seemingly related regression
JEL:C12
C22
E37
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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