Inflation and output growth uncertainty in individual survey expectations

Maritta Paloviita and Matti Virén

No 37/2012, Bank of Finland Research Discussion Papers from Bank of Finland

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 (search for similar items in EconPapers)
JEL-codes: C53 E31 E37 (search for similar items in EconPapers)
Date: 2012
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