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.
Econometrics | Economics
Cointegration, causality, and forecasting: A festschrift in honour of Clive W. J. Granger
H. White; R. F. Engle; C. W. J. Granger
Oxford University Press
City or Country
Diebold, Francis X.; Tay, Anthony S.; and Wallis, Kenneth F..
Evaluating density forecasts of inflation: The survey of professional forecasters. (1999). Cointegration, causality, and forecasting: A festschrift in honour of Clive W. J. Granger. 76-90. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/561
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