Measuring uncertainty based on rounding: New method and application to inflation expectations

Carola Binder

Journal of Monetary Economics, 2017, vol. 90, issue C, 1-12

Abstract: The literature on cognition and communication documents that people use round numbers to convey uncertainty. This paper introduces a method of quantifying the uncertainty associated with round responses in pre-existing survey data. I construct micro-level and time series measures of inflation uncertainty since 1978. Inflation uncertainty is countercyclical and correlated with inflation disagreement, volatility, and the Economic Policy Uncertainty index. Inflation uncertainty is lowest among high-income consumers, college graduates, males, and stock market investors. More uncertain consumers are more reluctant to spend on durables, cars, and homes. Round responses are common on many surveys, suggesting numerous applications of this method.

Keywords: Uncertainty; Inflation; Consumption; Consumer durables; Expectations; Surveys (search for similar items in EconPapers)
JEL-codes: C10 D80 D83 D84 E21 E31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (158)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:90:y:2017:i:c:p:1-12

DOI: 10.1016/j.jmoneco.2017.06.001

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