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The Term Structure of Uncertainty: New Evidence from Survey Expectations

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  • CAROLA BINDER
  • TUCKER S. MCELROY
  • XUGUANG S. SHENG

Abstract

We construct measures of forecasters' subjective uncertainty at horizons from 1 to 5 years, using the European Central Bank's Survey of Professional Forecasters. The uncertainty curve is more linear than the disagreement curve. We document heterogeneity across forecasters in the level and the term structure of uncertainty, and show that the difference between long‐run and short‐run uncertainty is procyclical. We develop a signal extraction model that features (i) Kalman filter updating, (ii) time‐varying uncertainty, and (iii) assessment of multistep ahead uncertainty. Heterogeneous patterns of uncertainty over different horizons depend on perceived persistence and variability of the signal and the noise.

Suggested Citation

  • Carola Binder & Tucker S. Mcelroy & Xuguang S. Sheng, 2022. "The Term Structure of Uncertainty: New Evidence from Survey Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 39-71, February.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:1:p:39-71
    DOI: 10.1111/jmcb.12811
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    References listed on IDEAS

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    2. Alessandro Barbera & Dora Xia & Sonya Zhu, 2023. "The term structure of inflation forecasts disagreement and monetary policy transmission," BIS Working Papers 1114, Bank for International Settlements.
    3. An, Zidong & Sheng, Xuguang Simon & Zheng, Xinye, 2023. "What is the role of perceived oil price shocks in inflation expectations?," Energy Economics, Elsevier, vol. 126(C).

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