IDEAS home Printed from
   My bibliography  Save this article

On the Formation of Expected Inflation under Various Conditions: Some Survey Evidence


  • Baghestani, Hamid


Based on the notion of economically rational expectations, the author hypothesizes that the degree of the rationality of economic agents' inflationary expectations differs depending on the prevailing rate and volatility of inflation. This is tested for the Institute for Social Research monthly survey data by using the inflation forecasts from an autoregressive integrated moving average model and those from a vector autoregressive model, respectively, as benchmarks for the weak and stronger measures of rationality. The author's analysis for 1978:01-1985:06 reveals evidence in favor of the above hypothesis. Copyright 1992 by University of Chicago Press.

Suggested Citation

  • Baghestani, Hamid, 1992. "On the Formation of Expected Inflation under Various Conditions: Some Survey Evidence," The Journal of Business, University of Chicago Press, vol. 65(2), pages 281-293, April.
  • Handle: RePEc:ucp:jnlbus:v:65:y:1992:i:2:p:281-93

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Margaret E. Slade, 1991. "Strategic Pricing with Customer Rationing: The Case of Primary Metals," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 70-100, February.
    2. Gould, John P, 1978. "Inventories and Stochastic Demand: Equilibrium Models of the Firm and Industry," The Journal of Business, University of Chicago Press, vol. 51(1), pages 1-42, January.
    3. Carlton, Dennis W, 1978. "Market Behavior with Demand Uncertainty and Price Inflexibility," American Economic Review, American Economic Association, vol. 68(4), pages 571-587, September.
    4. Newbery, David M., 1988. "On the accuracy of the mean-variance approximation for futures markets," Economics Letters, Elsevier, vol. 28(1), pages 63-68.
    5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    6. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, January.
    7. Masahiro Kawai, 1983. "Spot and Futures Prices of Nonstorable Commodities Under Rational Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 235-254.
    8. Turnovsky, Stephen J, 1983. "The Determination of Spot and Futures Prices with Storable Commodities," Econometrica, Econometric Society, vol. 51(5), pages 1363-1387, September.
    9. Robert E. Hall, 1984. "The Inefficiency of Marginal-Cost Pricing and The Apparent Rigidity of Prices," NBER Working Papers 1347, National Bureau of Economic Research, Inc.
    10. Hubbard, R. Glenn & Weiner, Robert J., 1986. "Oil supply shocks and international policy coordination," European Economic Review, Elsevier, vol. 30(1), pages 91-106, February.
    11. John W. Pratt & David A. Wise & Richard Zeckhauser, 1979. "Price Differences in almost Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 189-211.
    12. Carlton, Dennis W, 1979. "Vertical Integration in Competitive Markets under Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 27(3), pages 189-209, March.
    13. R. Glenn Hubbard, 1986. "Supply Shocks and Price Adjustment in the World Oil Market," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 85-102.
    14. James G. MacKinnon & Nancy D. Olewiler, 1980. "Disequilibrium Estimation of the Demand for Copper," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 197-211, Spring.
    15. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    16. McCafferty, Stephen & Driskill, Robert, 1980. "Problems of Existence and Uniqueness in Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 48(5), pages 1313-1317, July.
    17. Hubbard, R Glenn & Weiner, Robert J, 1989. "Contracting and Price Adjustment in Commodity Markets: Evidence from Copper and Oil," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 80-89, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Baghestani, Hamid & Kherfi, Samer, 2008. "How well do U.S. consumers predict the direction of change in interest rates?," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 725-732, November.
    2. Prat, Georges & Uctum, Remzi, 2011. "Modelling oil price expectations: Evidence from survey data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(3), pages 236-247, June.
    3. Silva Lopes, Artur, 1994. "A "hipótese das expectativas racionais": teoria e realidade (uma visita guiada à literatura até 1992)
      [The "rational expectations hypothesis": theory and reality (a guided tour
      ," MPRA Paper 9699, University Library of Munich, Germany, revised 23 Jul 2008.
    4. Baghestani, Hamid, 2015. "Predicting gasoline prices using Michigan survey data," Energy Economics, Elsevier, vol. 50(C), pages 27-32.
    5. Andrade, Isabel, 1992. "The relationship between inflation and relative price variability: A multivariate approach," Discussion Paper Series In Economics And Econometrics 9203, Economics Division, School of Social Sciences, University of Southampton.
    6. William Goetzmann & Eduardas Valaitis, 2006. "Simulating Real Estate in the Investment Portfolio: Model Uncertainty and Inflation Hedging," Yale School of Management Working Papers amz2476, Yale School of Management, revised 01 May 2006.
    7. Hamid Baghestani, 2016. "Interest rate movements and US consumers’ inflation forecast errors: is there a link?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(3), pages 623-630, July.
    8. Wärneryd, K.E., 1995. "Demystifying rational expectations theory through an economic-psychological model," Discussion Paper 1995-92, Tilburg University, Center for Economic Research.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:65:y:1992:i:2:p:281-93. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.