Inflation and output growth uncertainty in individual survey expectations

Paloviita, Maritta; Virén, Matti

doi:10.1007/s10663-013-9225-z

Cited by 10 publications

(7 citation statements)

References 17 publications

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“…Finally, the parameter governing the degree of disagreement between the two agents is w = 0.60. This results in an average cross-agent dispersion of their output growth forecasts of 0.59%, comparable to the findings of Andrade, Crump, Eusepi, and Moench (2014) and Paloviita and Viren (2012), who document a cross-sectional dispersion of forecasts of about 0.60% at the one-year horizon.…”

Section: Calibrationsupporting

confidence: 82%

The intended and unintended consequences of financial-market regulations: A general-equilibrium analysis

Buss

Dumas

Uppal

et al. 2016

Journal of Monetary Economics

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Financial markets have historically been regulated. This regulation is motivated by the desire to rule out anti-competitive behavior, to prevent agency problems that arise in the presence of asymmetric information, and to limit negative externalities, where the behavior of an individual investor or institution can affect the entire financial system. The recent financial crisis, which has highlighted the negative feedback from financial markets to the real sector, has intensified the debate about the ability of financial-market regulations to stabilize these markets and improve macroeconomic outcomes. We study the intended and unintended consequences of various regulatory measures used to reduce fluctuations in financial and real markets and to improve welfare. The measures we study are the ones that have been proposed by regulators in response to the financial crisis: the Tobin financial-transactions tax, portfolio (short-sale) constraints, and borrowing (leverage) constraints.For example, on 1 August 2012, France introduced a financial transaction tax of 0.20%; on 25 July 2012, Spain's Comision Nacional del Mercado de Valores (CNMV) imposed a three-month ban on short-selling stocks, while Italy's Consob prohibited short-selling of stocks of 29 banks and insurance companies; and, tighter leverage constraints have been proposed following the subprime crisis: for instance, on 17 October 2008 the European Commissioner, Joaquin Almunia, said: "Regulation is going to have to be thoroughly anti-cyclical, which is going to reduce leverage levels from what we've seen up to now."Our objective is to evaluate these three regulatory measures within the same dynamic, stochastic general equilibrium model of a production economy, and to compare within a single economic setting, both the intended and unintended effects of these different measures on the financial and real sectors. The kind of questions we address are the following: Of the three regulatory measures we consider, which is most effective in stabilizing financial markets? What exactly is the channel through which each measure works? What will be the impact, intended or unintended, of this measure on other financial variables and the spillover effects on real variables? Would more tightly regulated markets be more stable and increase productivity and welfare?We have undertaken a general-equilibrium analysis of a production economy with investors who are uncertain about the current state of the economy and disagree in a time-varying way about its expected growth rate. Trading in financial markets allows investors to share laborincome risks. But, financial markets also provide an arena for speculative trading amongst investors who disagree. This speculative trading increases volatility of bond and stock returns and also the volatility of investment growth, increases the equity risk premium, and reduces welfare.The main finding of our paper is that all three regulatory measures we consider have similar effects on financial and macroeconomic variables: they reduce stock ...

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Section: Calibrationsupporting

confidence: 82%

The intended and unintended consequences of financial-market regulations: A general-equilibrium analysis

Buss

Dumas

Uppal

et al. 2016

Journal of Monetary Economics

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“…Lahiri and Teigland (1987) and the references therein discuss whether the shape of the distribution has an impact on forecast precision and find that, for the ASA-NBER quarterly surveys, distributions vary significantly over time and the assumption of normality is rejected quite often. Paloviita and Viren (2014) also deal with the relationship between first and second moments of inflation and output growth forecasts from the ECB-SPF, finding that in the recent crisis individual forecasters have reacted to increasing uncertainty by adopting a completely different distribution.…”

Section: Forecasting Performance Of Uncertainty Measuresmentioning

confidence: 99%

Measuring uncertainty and assessing its predictive power in the euro area

Poncela

Senra

2016

Empir Econ

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Expectations and uncertainty play a key role in economic behavior. This paper deals with both, expectations and uncertainty derived from the European Central Bank Survey of Professional Forecasters. Given the strong turbulences that the euro area macroeconomic indicators observe since 2007, the aim of the paper is to check whether there is any room for improvement of the consensus forecast accuracy for GDP growth and inflation when accounting for uncertainty. We propose a new measure of uncertainty, alternative to the ad hoc equal weights commonly used, based on principal components. We test the role of uncertainty in forecasting macroeconomic performance in the euro area between 2005 and 2015. We also check the role of surprises in the considered forecasting sample.

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“…They also find that inflation and output uncertainties based on probability distributions are closely related at the micro level. According to Paloviita and Virén (2014b), inflation uncertainty has a negative impact on economic activity.…”

Section: The Ecb Survey Of Professional Forecastersmentioning

confidence: 99%

Analysis of Aggregated Inflation Expectations Based on the ECB SPF Survey

Oinonen

Paloviita

2014

SSRN Journal

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This paper examines aggregated inflation expectations based on the ECB Survey of Professional Forecasters (ECB SPF). We analyse possible impacts of changing panel composition on short and long term point forecasts and forecast uncertainties using approach, which is based on a set of sub-panels of fixed composition. Our results indicate that the unbalanced panel data do not cause systematic distortions to aggregated survey information.However, micro level analysis of expectations would also be useful, especially in times of wide disagreement across forecasters and high levels of inflation uncertainty.

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Inflation and output growth uncertainty in individual survey expectations

Cited by 10 publications

References 17 publications

The intended and unintended consequences of financial-market regulations: A general-equilibrium analysis

The intended and unintended consequences of financial-market regulations: A general-equilibrium analysis

Measuring uncertainty and assessing its predictive power in the euro area

Analysis of Aggregated Inflation Expectations Based on the ECB SPF Survey

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