A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area

Rich, Robert W.; Tracy, Joseph

doi:10.24149/wp1811

Cited by 3 publications

(3 citation statements)

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“…On the one hand, the obtained results could be somehow indicating that highly heterogeneous survey responses regarding unemployment expectations do not necessarily indicate high employment uncertainty. This notion is also in line with recent evidence indicating that forecast disagreement and news-based indicators of uncertainty capture inherently different phenomena (Glas 2020;Krüger and Nolte 2016;Rich and Tracy 2021;Sorić and Lolić 2017). Regardless of that, the computed measure of disagreement indeed includes valuable information for the long-run state of unemployment, and this finding is very robust across countries.…”

Section: Empirical Analysissupporting

confidence: 88%

Employment Uncertainty a Year after the Irruption of the COVID-19 Pandemic

Sorić

Clavería

2021

SSRN Journal

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This paper examines the evolution of consumer uncertainty about unemployment one year after the irruption of the covid-19 pandemic in European countries. Since uncertainty is not directly observable, we use two alternative methods to directly approximate it. Both approaches are based on qualitative expectations elicited form the consumer survey conducted by the European Commission. On the one hand, following Dibiasi and Iselin ( 2019), we use the share of consumers unable to formalize expectations about unemployment (Knightian-type uncertainty). On the other hand, we use the geometric discrepancy indicator proposed by Claveria et al. (2019) to quantify the proportion of disagreement in business and consumer expectations. We have used information from 22 European countries. We find that both uncertainty measures covary. Although we observe marked differences across countries, in most cases the perception of employment uncertainty peaked before the outbreak of the crisis, plummeted during the first months of the lockdown, and started rising again since the past few months. When testing for cointegration with the unemployment rate, we find that the discrepancy indicator exhibits a long-term relationship with unemployment in most countries, while the Knightian uncertainty indicator shows a purely short-run relationship. The impact of both indicators on unemployment is characterised by considerable asymmetries, showing a more intense reaction to decreases in the level of uncertainty. While this finding may seem counterintuitive at first sight, it somehow reflects the fact that during recessive periods, the level of disagreement in the employment expectations of consumers drops considerably.

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Section: Empirical Analysissupporting

confidence: 88%

Employment Uncertainty a Year after the Irruption of the COVID-19 Pandemic

Sorić

Clavería

2021

SSRN Journal

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“…Turning to the density‐based disagreement measures, there is a more meaningful and robust positive relationship between individual uncertainty and individual disagreement. Drawing upon the analysis of Rich and Tracy (2018), the stronger association reflects movements in the density disagreement measures at low levels of forecast dispersion that are able to pick up more of the corresponding movements in uncertainty. Nevertheless, while the statistical significance of the relationship is robust to including time and respondent effects, the incremental explanatory content of disagreement is again modest and progressively declines as we control for the time‐ and respondent‐specific components of the variance.…”

Section: Empirical Analysismentioning

confidence: 98%

A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area

Rich¹,

Tracy²

2020

J of Money Credit Banking

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This paper examines point and density forecasts of real GDP growth, inflation, and unemployment from the European Central Bank's Survey of Professional Forecasters. We analyze individual uncertainty measures as well as introduce individual point‐ and density‐based disagreement measures. The analysis indicates forecasters’ uncertainty and disagreement display substantial heterogeneity and persistence, with the latter feature challenging a key prediction of expectations models emphasizing information frictions. We also find that uncertainty is characterized by prominent respondent effects and disagreement by prominent time effects, suggesting these divergent properties underlie the well‐documented weak uncertainty–disagreement linkage. Taken together, our results provide a basis for further development of expectations models.

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“…Only few surveys provide information about individual-specific probability distributions of inflation expectations, including the Survey of Professional Forecasters (e.g. Rich and Tracy, 2018) and Apokoritis et al (2019) for the euro area, the Bank of England survey of external forecasters (Boero et al, 2008;Tenreyro, 2019), and the Survey of Professional Forecasters (D'Amico and Orphanides, 2008) and the Federal Reserve Bank of New York Survey of Consumer Expectations (Bruine de Bruin et al, 2011) for the United States.…”

Section: Literature Reviewmentioning

confidence: 99%

The Anchoring of Long-Term Inflation Expectations of Consumers: Insights from a New Survey

2020

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BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.This publication is available on the BIS website (www.bis.org).

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A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area

Cited by 3 publications

References 20 publications

Employment Uncertainty a Year after the Irruption of the COVID-19 Pandemic

Employment Uncertainty a Year after the Irruption of the COVID-19 Pandemic

A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area

The Anchoring of Long-Term Inflation Expectations of Consumers: Insights from a New Survey

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