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Inflation Uncertainty from Firms’ Perspective, Overconfidence and Credibility of Monetary Policy

Author

Listed:
  • Borraz Fernando

    (Departamento de Economía de la Facultad de Ciencias Sociales de la Universidad de la República, and Universidad de Montevideo, Montevideo, Uruguay)

  • Orlik Anna

    (Federal Reserve Board, Washington, DC, USA)

  • Zacheo Laura

    (56724 Banco Central del Uruguay , Montevideo, Uruguay)

Abstract

This paper uses survey data to gauge firms’ inflation uncertainty. First, it shows how commonly used proxies of uncertainty, such as ex post squared forecast errors or forecast dispersion differ from measures of actual ex ante inflation uncertainty. Second, this paper documents novel stylized facts: firms’ uncertainty and overconfidence – low ex ante variances compared to ex post (squared) forecast errors – are shown to be relevant for how firms’ form their beliefs about inflation and their inflation forecasts accuracy (firms know what they do not know) and to impact firms’ beliefs about credibility of monetary policy.

Suggested Citation

  • Borraz Fernando & Orlik Anna & Zacheo Laura, 2024. "Inflation Uncertainty from Firms’ Perspective, Overconfidence and Credibility of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(2), pages 853-882.
    • Handle: RePEc:bpj:bejmac:v:24:y:2024:i:2:p:853-882:n:1004
    DOI: 10.1515/bejm-2023-0161
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    More about this item

    Keywords

    inflation expectations; inflation uncertainty; overconfidence; subjective probability distribution; monetary policy; central bank’s credibility;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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