Modelling multi-period inflation uncertainty using a panel of density forecasts

Fushang Liu and Kajal Lahiri
Additional contact information
Fushang Liu: Department of Economics, University at Albany, SUNY Albany, NY 12222, USA, Postal: Department of Economics, University at Albany, SUNY Albany, NY 12222, USA

Journal of Applied Econometrics, 2006, vol. 21, issue 8, 1199-1219

Abstract: This paper examines the determinants of inflation forecast uncertainty using a panel of density forecasts from the Survey of Professional Forecasters (SPF). Based on a dynamic heterogeneous panel data model, we find that the persistence in forecast uncertainty is much less than what the aggregate time series data would suggest. In addition, the strong link between past forecast errors and current forecast uncertainty, as often noted in the ARCH literature, is largely lost in a multi-period context with varying forecast horizons. We propose a novel way of estimating 'news' and its variance using the Kullback-Leibler information, and show that the latter is an important determinant of forecast uncertainty. Our evidence suggests a strong relationship of forecast uncertainty with level of inflation, but not with forecaster discord or with the volatility of a number of other macroeconomic indicators. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.880 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2006-v21.8/ Supporting data files and programs (text/html)

Related works:
Journal Article: Modelling multi‐period inflation uncertainty using a panel of density forecasts (2006)
Working Paper: Modeling Multi-Period Inflation Uncertainty Using a Panel of Density Forcasts (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:21:y:2006:i:8:p:1199-1219

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.880

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().