Elevated survey uncertainty after the Great Recession: a non-linear approach

Natalia Levenko

No wp2020-2, Bank of Estonia Working Papers from Bank of Estonia

Abstract: The European Survey of Professional Forecasters (SPF) is a dataset that is widely used to derive measures of forecast uncertainty. Participants in the SPF provide not only point estimates but also density forecasts for key macroeconomic variables. The mean individual variance, defined as the average of the variances of individual forecasts, shifted up during the Great Recession and has remained elevated since the crisis. This shift is not typical since proxies for uncertainty are usually counter-cyclical. The paper seeks to explain this puzzling lack of countercyclicality by applying a smooth transition analysis on data from the European SPF. The analysis indicates that the mean individual variance has a non-linear relationship with the share of non-rounded responses in the survey and consequently the upward shift in individual variance is likely to be associated with changes in the modelling preferences of forecasters. The results remain robust after potential endogeneity has been accounted for

Keywords: survey uncertainty; forecast disagreement; density forecasts; surveys of professional forecasters; Great Recession; smooth transition; instrumental variables (search for similar items in EconPapers)
JEL-codes: C25 C32 C83 D81 E32 E37 (search for similar items in EconPapers)
Date: 2020-05-18, Revised 2020-05-18
New Economics Papers: this item is included in nep-eec and nep-mac
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