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Rethinking the measurement of household inflation expectations: preliminary findings

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  • Wilbert van der Klaauw
  • Wändi Bruine de Bruin
  • Giorgio Topa
  • Simon Potter
  • Michael Bryan

Abstract

This paper reports preliminary findings from a Federal Reserve Bank of New York research program aimed at improving survey measures of inflation expectations. We find that seemingly small differences in how inflation is referred to in a survey can lead respondents to consider significantly different price concepts. For near-term inflation, the "prices in general" question in the monthly Reuters/University of Michigan Surveys of Consumers can elicit responses that focus on the most visible prices, such as gasoline or food. Questions on the "rate of inflation" can lead to responses on the prices that U.S. citizens pay in general - an interpretation, or concept, closer to the definition of inflation that economists have in mind; they also lead to both lower levels of reported inflation and to lower disagreement among respondents. In addition, we present results associated with new survey questions that assess the degree of individual uncertainty about future inflation outcomes as well as future expected wage changes. Finally, using the panel dimension of the surveys, we find that individual responses exhibit considerable persistence, both in the expected level of inflation and in forecast uncertainty. Respondents who are more uncertain make larger revisions to their expectations in the next survey.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 359.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:359

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Keywords: Inflation (Finance) ; Economic indicators ; Economic surveys ; Uncertainty;

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References

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Cited by:
  1. Lena Vogel & Jan-Oliver Menz & Ulrich Fritsche, 2009. "Prospect Theory and Inflation Perceptions - An Empirical Assessment," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200903, Hamburg University, Department Wirtschaft und Politik.
  2. Gabriela Galati & Steven Poelhekke & Chen Zhou, 2011. "Did the Crisis Affect Inflation Expectations?," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 167-207, March.
  3. Ernest Gnan & Johannes Langthaler & Maria Teresa Valderrama, 2011. "Heterogeneity in Euro Area Consumers’ Inflation Expectations: Some Stylized Facts and Implications," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 43–66.
  4. Soren T. Anderson & Ryan Kellogg & James M. Sallee, 2011. "What Do Consumers Believe About Future Gasoline Prices?," NBER Working Papers 16974, National Bureau of Economic Research, Inc.
  5. Lena Dräger, 2011. "Inflation Perceptions and Expectations in Sweden - Are Media Reports the `Missing Link'?," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 201101, Hamburg University, Department Wirtschaft und Politik.
  6. Wändi Bruine de Bruin & Simon Potter & Robert Rich & Giorgio Topa & Wilbert van der Klaauw, 2010. "Improving survey measures of household inflation expectations," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 16(Aug/Sep).
  7. Lena Dräger & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
  8. Elmar Mertens, 2011. "Measuring the level and uncertainty of trend inflation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-42, Board of Governors of the Federal Reserve System (U.S.).

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