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Overcoming Measurement Error Problems in the Use of Survey Data on Expectations

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  • KEVIN LEE
  • KALVINDER SHIELDS

Abstract

Survey data frequently requires conversion from qualitative responses to quantitative series and it is often asserted that the conversion procedures introduce measurement errors that render the series unusable in structural modelling. We investigate the nature and treatment of the measurement error that arises when conversion procedures are used to obtain direct measures of expectations. We use simulation experiments to demonstrate the need for the adequate treatment of conversion errors and show that a procedure proposed to ‘purge’ the series of conversion error is extremely successful in circumventing the problems. We illustrate the procedures in empirical applications using business survey data.

Suggested Citation

  • Kevin Lee & Kalvinder Shields, 2007. "Overcoming Measurement Error Problems in the Use of Survey Data on Expectations," The Economic Record, The Economic Society of Australia, vol. 83(262), pages 303-316, September.
    • Handle: RePEc:bla:ecorec:v:83:y:2007:i:262:p:303-316
    DOI: 10.1111/j.1475-4932.2007.00416.x
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    References listed on IDEAS

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    1. Fiebig, Denzil G, 1985. "Evaluating Estimators without Moments," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 529-534, August.
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    3. Bonham, Carl S & Cohen, Richard H, 2001. "To Aggregate, Pool, or Neither: Testing the Rational-Expectations Hypothesis Using Survey Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 278-291, July.
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    5. Athanasios Orphanides & John Williams, 2004. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Chapters, in: The Inflation-Targeting Debate, National Bureau of Economic Research, Inc.
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    7. Lee, Kevin C, 1994. "Formation of Price and Cost Inflation Expectations in British Manufacturing Industries: A Multi-Sectoral Analysis," Economic Journal, Royal Economic Society, vol. 104(423), pages 372-385, March.
    8. Smith, Jeremy & McAleer, Michael, 1995. "Alternative Procedures for Converting Qualitative Response Data to Quantitative Expectations: An Application to Australian Manufacturing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 165-185, April-Jun.
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    Cited by:

    1. Kevin Lee & Michael Mahony & Paul Mizen, 2020. "The CBI Suite of Business Surveys," Economic Statistics Centre of Excellence (ESCoE) Technical Reports ESCOE-TR-08, Economic Statistics Centre of Excellence (ESCoE).
    2. Alina Barnett & Jan J J Groen & Haroon Mumtaz, 2010. "Time-varying inflation expectations and economic fluctuations in the United Kingdom: a structural VAR analysis," Bank of England working papers 392, Bank of England.
    3. Wändi Bruine de Bruin & Michael F. Bryan & Simon M. Potter & Giorgio Topa & Wilbert Van der Klaauw, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York.

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    More about this item

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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