Krüger, Fabian ; Pavlova, Lora
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Abstract
Several recent surveys ask for a person's subjective probabilities that the inflation rate falls into various outcome ranges. We provide a new measure of the uncertainty implicit in such probabilities. The measure has several advantages over existing methods: It is trivial to implement, requires no functional form assumptions, and is well-defined for all logically possible probabilities. From a theoretical viewpoint, the measure can be motivated as the entropy function of a strictly proper scoring rule. We demonstrate the measure's good performance in a simulation study based on empirical data from the Survey of Consumer Expectations.
Document type: | Working paper |
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Series Name: | Discussion Paper Series / University of Heidelberg, Department of Economics |
Volume: | 0664 |
Place of Publication: | Heidelberg |
Date Deposited: | 03 Jun 2019 13:36 |
Date: | May 2019 |
Number of Pages: | 30 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Uncontrolled Keywords: | uncertainty, inflation, economic expectations, probabilistic forecasting |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |