Estimating Macroeconomic Uncertainty and Discord Using Info-Metrics

55 Pages Posted: 25 Jul 2019

See all articles by Kajal Lahiri

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Wuwei Wang

Southwestern University of Finance and Economics (SWUFE)

Date Written: 2019

Abstract

We apply generalized beta and triangular distributions to histograms from the Survey of Professional Forecasters (SPF) to estimate forecast uncertainty, shocks and discord using information framework, and compare these with moment-based estimates. We find these two approaches to produce analogous results, except in cases where the underlying densities deviate significantly from normality. Even though the Shannon entropy is more inclusive of different facets of a forecast density, we find that with SPF forecasts it is largely driven by the variance of the densities. We use Jenson-Shannon Information to measure ex ante "news" or "uncertainty shocks" in real time, and find that this 'news' is closely related to revisions in forecast means, countercyclical, and raises uncertainty. Using standard vector auto-regression analysis, we confirm that uncertainty affects the economy negatively.

Keywords: density forecasts, uncertainty, disagreement, entropy measures, Jensen-Shannon information, Survey of Professional Forecasters

JEL Classification: E370

Suggested Citation

Lahiri, Kajal and Wang, Wuwei, Estimating Macroeconomic Uncertainty and Discord Using Info-Metrics (2019). CESifo Working Paper No. 7674. Available at SSRN: https://ssrn.com/abstract=3422256

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Wuwei Wang (Contact Author)

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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