Uncertainty and Disagreement in Forecasting Inflation: Evidence from the Laboratory (Revised version of EBC DP 2011-014)

D. Pfajfar, B. Zakelj

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Abstract

Abstract: This paper compares the behavior of subjects' 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.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages66
Volume2012-018
Publication statusPublished - 2012

Publication series

NameEBC Discussion Paper
Volume2012-018

Keywords

  • Laboratory Experiments
  • Confidence Bounds
  • New Keynesian Model
  • Inflation Expectations

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