Evaluating Density Forecasts of Inflation: The Survey of Professional Forecasters

26 Pages Posted: 26 Aug 2000 Last revised: 7 Oct 2010

See all articles by Francis X. Diebold

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Anthony S. Tay

Singapore Management University - School of Economics

Kenneth F. Wallis

University of Warwick - Department of Economics

Date Written: October 1997

Abstract

Since 1968, the Survey of Professional Forecasters has asked respondents to provide a" complete probability distribution of expected future inflation. We evaluate the adequacy of" those density forecasts using the framework of Diebold, Gunther and Tay (1997). The analysis" reveals several interesting features of the density forecasts in relation to realized inflation including several deficiencies of the forecasts. The probability of a large negative inflation" shock is generally overestimated, and in more recent years the probability of a large shock of" either sign is overestimated. Inflation surprises are serially correlated eventually adapt. Expectations of low inflation are associated with reduced uncertainty. The" results suggest several promising directions for future research.

Suggested Citation

Diebold, Francis X. and Tay, Anthony S. and Wallis, Kenneth F., Evaluating Density Forecasts of Inflation: The Survey of Professional Forecasters (October 1997). NBER Working Paper No. w6228. Available at SSRN: https://ssrn.com/abstract=225986

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anthony S. Tay

Singapore Management University - School of Economics ( email )

90 Stamford Road
178903
Singapore

Kenneth F. Wallis

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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