Measuring Economic Uncertainty Using the Survey of Professional Forecasters

Keith Sill

Senior Vice President of Research and Director of the Real-Time Data Research Center

Q4 2012

Business Review — Uncertainty about how the economy will evolve is a key concern for households and firms. People’s views on how likely it is that the economy will be growing, stagnating, or in recession help shape the actions they take today.

Consequently, how households and firms respond to uncertainty has implications for economic activity. In addition, uncertainty matters to policymakers: Monetary policymakers recognize that if uncertainty about future inflation is high, decision-making by households and firms becomes more complicated. In this article, Keith Sill describes how uncertainty can be measured using data from the Survey of Professional Forecasters and shows how these measures have changed over time for output growth and inflation. He also examines some links between the macroeconomy and measures of output and inflation uncertainty.

This article appeared in the Fourth Quarter 2012 edition of Business Review.

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