Uncertainty and Disagreement in Forecasting Inflation: Evidence from the Laboratory
CentER Discussion Paper Series No. 2012-072
66 Pages Posted: 10 May 2011 Last revised: 4 Sep 2012
Date Written: September 4, 2012
This paper compares the behavior of subject' uncertainty in different monetary policy environments when forecasting inflation in the laboratory. We find that inflation targeting produces lower uncertainty and higher accuracy of interval forecasts than inflation forecast targeting. We also establish several stylized facts about the behavior of individual uncertainty, aggregate distribution of forecasts,and disagreement between individuals. We find that the average confidence interval is the measure that performs best in forecasting inflation uncertainty. Subjects correctly perceive the underlying inflation uncertainty in only 60% of cases and tend to report asymmetric confidence intervals, perceiving higher uncertainty with respect to inflation increases.
Keywords: Laboratory Experiments, Confidence Bounds, New Keynesian Model
JEL Classification: C91, C92, E37, D80
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