The Term Structure of Uncertainty: New Evidence from Survey Expectations

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.