The Behavior of Uncertainty and Disagreement and Their Roles in Economic Prediction: A Panel Analysis

38 Pages Posted: 23 Feb 2017

See all articles by Robert W. Rich

Robert W. Rich

Federal Reserve Bank of Cleveland

Joseph S. Tracy

National Bureau of Economic Research (NBER); Federal Reserve Bank of Dallas

Date Written: 2017-02-01

Abstract

This paper examines point and density forecasts from the European Central Bank’s Survey of Professional Forecasters. We derive individual uncertainty measures along with individual point- and density-based measures of disagreement. We also explore the relationship between uncertainty and disagreement, as well as their roles in respondents’ forecast performance and forecast revisions. We observe substantial heterogeneity in respondents’ uncertainty and disagreement. In addition, there is little co-movement between uncertainty and disagreement, and forecast performance shows a more robust inverse relationship with disagreement than with uncertainty. Further, forecast revisions display a more meaningful association with disagreement than with uncertainty: Those respondents displaying higher levels of disagreement revise their point and density forecasts by a larger amount.

Keywords: uncertainty, disagreement, ECB-SPF, density forecasts, point forecasts, forecast accuracy, forecast revisions

JEL Classification: C10, C20, C40

Suggested Citation

Rich, Robert W. and Tracy, Joseph, The Behavior of Uncertainty and Disagreement and Their Roles in Economic Prediction: A Panel Analysis (2017-02-01). FRB of NY Staff Report No. 808, Available at SSRN: https://ssrn.com/abstract=2922383

Robert W. Rich (Contact Author)

Federal Reserve Bank of Cleveland ( email )

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Joseph Tracy

National Bureau of Economic Research (NBER) ( email )

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Federal Reserve Bank of Dallas ( email )

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