The measurement of price expectations

THE MEASUREMENT OF PRICE EXPECTATIONS Douglas

K. Pearce'

INTRODUCTION A recurrent quantities problem

particularly

role

of

time,

be made on the In this the which

researchers of expected expected Fisher the

sum of

the

price

is an important 1

Douglas the University

variable

value.

behavior

(17:46),

In econis often

economic

decisions

with

a

processes

must generally

the

on nominal

issue.

rate

of return

The extent If

problem

received

much attention

extended

period

of

in

inflation

In particular,

of quantifying

anticipated

relationships:

interest

of price

rates

the

and the

influence

influence

of

wage rates.

of these relationships (8) Fisher posited real

measurement

economies.

two important

on nominal

level.

on the

by the

industrialized

to test

inflation inflation

The first effect.

general

most

in order

This

theoretical

realized

world,

has recently no doubt

have wrestled

inflation

out

is focused

subject

prompted

has plagued

than

pointed

attention

This

literature,

rather

observable

of expectations.

paper,

expectations.

when the

in an uncertain

basis

finding variables.

in influencing

as Keynes

and thus,

is

theoretical

difficulty

expectations

one since,

take

research

measure

to be an expected

the

crucial

in empirical

appropriately

becomes

is specified omics,

problem

which

that

is commonly referred the nominal interest

and the to which

expectations

expected the

change

Fisher

of a higher

K. Pearce is an Assistant Professor of Houston, Houston, Texas.

effect

to as the rate was in the is

inflation

of

Economics

true rate

at

146

signigicantly of

push up interest

interest

dited

rates

on other

reason

for

specify

as an indicator

grounds,

examining

the

rates,

real

rate

be even more

relationship

of

interest

researchers come to empirically have generally used an observable exists

a stable

interest tions,

rates, and if one could derive

of

interest

Feldstein employ

relationship

which

rate

may give

He conjectured rate

sensitivity

of

The second wage rates, the

then

long

that

the

the

Phillips

this

investment

rate

estimated differ

This price

coefficient significantly

as evidence

consistent

The empirical of

price

survey

expectations. the

different

When they there

found

point

is the cause

inflation

on the

expectations

(9)

The purpose approaches

on shape

rate"

and Phelps

of or

(26)

argue

exhibited

Unexpected

by estimating

by

inflation

which

rate

the above of this

to quantifying

from

long

a wage rate

variable.

variable sense)

natural of

the

"natural

an explanatory

statistical the

inflation

increased employment. In the and, thus, no reduction in

is

verification

(5)

low interest

over

of the

has been tested

with

of the

run phenomenon.

the

correct

coefficients.

and unemployment

expectation (in

theoretically

of expected

such as Friendman

theory

models.

which

in many studies.

effect

Proponents

a short

models

of the

in the controversy

curve.

of these

holds,

estimates

lowers real wage rates resulting in run, there is no unexpected inflation unemployment. model in which

theories

and market

estimation

effect

was the

the

focal

is

expectations

in the

real

problem

between

curve

however, rate. If

price

discre-

many economic variable.

biased

hypothesis, trade-off

that

level

Another

as an explanatory

Fisher

when the

run Phillips

'expectations"

the

relationship,

is the

already

test these theories, nominal interest

be used

if

seriously

that

policy,

the

there is an acceptable measure of price expectaa data series corresponding to the real rate

could

a nominal

of using

questionable.

is

between

has shown that

variable,

practice

of monetary

would this

the

unity

An

does

not

is regarded

hypothesis. theories paper

requires

is to critically

price

expectations..

a measur

147

The next

section

in forming

briefly

expectations.

lag models,

the

survey

to measure

data

thoughts

considers

types

of

information

In the following sections of "rational" expectations,

concept

on future

the

expectations

work

various and the

are discussed.

are presented

in the

one might distributed use of

A sumnary

final

and

section.

INFORMATION AND EXPECTATION FORMATION Hicks

considered

by economic

three

agents

types

in forming

of information

price

which

expectations:

might

be used

(14:204)

One sort is entirely non-economic: the weather, the political news... Another is economic, but still not closely connected with actual price movements... The third consists of actual experience of prices. The first

information

to model

expectation

of events

in this

of information of these

set set

might

which

be rationalized events

are

in the

non-economic

factors

have

while

not

or only

slowly

mation

changing models

set This

on the other consider the generally must

is

information

very

not

stated

set

2See Katona consumer attitudes

formation

explicitly,

that or that

the

in trying

agents

inflation agents

believe

the

in the

influences

economic If,

however,

effects

on anticipations

observable

economic

which

ignore of

this

price

infor-

expectations.

with expectation proxies The most widely used models

researchers

economic

that

model.

estimates

concerned sets. actual

grounds

reflected

changing

misleading

primarily

two information third set, the

be assuming

by economists

expectation

significant

of expectation

may produce paper

on the

are quickly

included

these

variables,

been utilized

The effects on anticipated inflation 2 are uncertain. The exclusion of this type

non-economic

variables

has not

formation.

that

(16) for a sumnary of the following such events.

experience. employing are restricted this results

based only

Although such models to this

set contains of surveys

all of

use

148 the

information

models

considered

are considered Recently

concept forms

his

set the

attention

(22)

the

economic

theory

money supply

This

to predict

variables.

involved

in its

of

"rational" the price

agent

on information

For instance, while

expectations

economic determination

focuses

use past

inflation

in his model a measure of fiscal price expectations explores this

to the

model

These

section.

framework,

approach

of money might

inflation.

following

In this

by utilizing

observable

forecasting

in the

most appropriate.

quantity

for

has been given

by Muth.

expectations

two:

in the

in detail

more

suggested

he considers

relevant

rates

a believer of

change

a Keynesian

might

in include

policy. The section on rational view pointing out the problems

application.

DISTRIBUTED LAB MODELS OF PRICE EXPECTATIONS In practically expectations

all

empirical

of inflation,

inflation

have-been

of this

the

model

work

distributed

testing

the

lag models

used to measure

effects

of

of past rates of The general form

expectations.

is: n

where:

p: = the expected at time t-l = the

Pt-i The behavioral agents

assumption

form

solely

actual

their

on the The general

examined

in the

in testing

the

price

basis

context validity

inflation behind

this

past

Fisher

general

t formed

t-i

approach

of

price this

Suppose effect.

time

at time

in using

of an example. of the

for

and thus

history

involved

rate rate

expectations,

of the

problems

inflation

their

is price

that

economic

forecasts,

changes. model

can best

we are

interested

Assume the

real

be rate

149 of interest

can be considered

a constant

The full

model

is:

C21

PF = ' i=l or

= nominal

it

r = real Ut We wish that

to estimate

b is equal

price

series estimated issue model,

expectations,

must be made about estimate

interest

rate

CQI

rate

squares

arises

The inclusion First,

A second

+ ut

error

in order

is

to test

the

hypothesis

would

imply

serious

is that

rates

loss of degrees of freeserial correlation in

multicollinearity

and therefore

(32:X9) the

wi's,

b, in the the

inflation

number of lagged terms be a large number of pa,.ameters

result in a substantial presence of sigqificant

coefficients. the

how many lagged

of a large there would

two problems.

inflation

expectations

= random

which

to estimate which might dom. Second, the likely imprecise

wi ptmi

interest

C41 by least

issue

are appropriate.

the

c31

to unity.

The first produces

Pt-i

n bZ i=l

= r+

it

where

'i

weights on past inflation rates are confounded with the coefficient interest

sum of the

rate

weights

model. in order

in the of

Thus some assumption to identify

the

of b.3

3The estimated model would be . ^ . ^ ,. . 1 = r + b wi ptSl + b w2 ptw2 + . . . + b w, pt-., it To identify

b, one must constrain

the

weights

to sum to some constant.

150 Another price mined

serious

expectations by the least

weighting involving

price was the were

almost

the

same,

i.e.,

same for

the

the

certainly

expectations

For example, concerning

is that

estimated

weights

for

price

were

tested,

the

expectation

both

suppose

change

if

another

hypothesis

even when the horizon

theoretical

and the

economic

hypotheses.

we wished

expectations

to test of the

two economic

same economic

theories agents:

Xt = a + bp: + cyt + ut 5 where xt’

=t’

Yt’

the measure

= d + fp;

+ gvt

inflation

vt = economic

variables

of price

= error

c51

+ et

pt = expected

Ut’ et If

[61

rate

in time

t

terms

expectations

is:

n Pt = ;I, ‘ipt-i

then models chance

the

where

Pt-i

weights,

the

C51

that With

lag models

= inflation wi's.

above

which

problems

c71

rate

should

and C61 are estimated this condition will the

the

model, assuming they are identifiable, are detersquares fit of the interest rate model. Thus the

scheme would

variable agents

difficulty

in period

be the

same for

independently, be met.

in mind,

have been employed

t-i

then

some of the in the

both

literature

theories.

there

specific will

is

If little

distributed be examined.

151

The simplest static

expectations

The economic inflation is taken

lag model

model

agent

of

4

is assumed

and Parkin (18) A more sophisticated

to

believe

that

employing

this

If

a is

by exactly

and Toyoda (33). formulation is

expectations

the

are

based

to be one,

same amount to

last

The value

period of

as the

the

on the

values

signalled

a might

recent In a study

of

actual

European

expected 4Note that inflation

inflation static only

rate

if

is

than what

rate

in

in the

rate

changed

in the

people

believe

recent

trend

known as This would so that a positive

C203).

of change

horizon rate

increase hyperinflations

proportional

the

rate

inflation

changes

unity, are

and Sutch was cyclical

but a sustained

seven

change

c91

inflation

expectation

in the

(251, expectations

recent

inflation

Of a imply

on the

A jump

most

and extrapolate

a downturn

depend

change.

Perry

- Pt-2)

the two World Wars, Phillip Cagan,introduced formation which gave "adaptive" expectations

future

experienced

extrapolative

of u greater

(see Modigliani the inflation rate

not change expectations

of the

currently

include

expected

be accelerating

Negative

expectations people felt

if

the

For values

period. rate

future.

regreSSiVe

of the

assumed

the

most recent the inflation

change

is the

the

model

P; = Ptt- 1 + a (Pt,,

occur

expectations

in which:

Wage studies

model in which inflation:

into

price

rate will continue unchanged for the next period. No notice of past trends in inflation or past amounts of unexpected

inflation. Lipsey

distributed

of prices,

and on the for

might. which

a model in that to the

one month occurred

of expectation .the revision

duration may between of

difference

expectations would yield optimal forecasts of the inflation rate followed a random walk.

152

between

the

actual

rate

and the

expected

rate.

(2)

The model

is

expressed

by:

dPf

(yij&

where

pt,

= 6 (P,

- P;)

pt are defined

as above.

Expectations are thus adjusted by some proportion, recently experienced error inforecasting inflation. time models, equation:

the

differential

equation

is

P; = Pet_l + 8 (Pt-,

Cagan labelled with

which

Rewriting

B "the

expectations equation

can be seen that

today's

and never

For 8 equal today's

inflation inflation

of

expectations",

to actual

expectation

revised

to unity,

for

so that

we return

rate

For 0 < B < 1, the actual

Cl11

the

inflation

speed

rates.

+ (l-B)P;-,

0 2 6 2 1) of yesterday's'expectation inflation rate. A value of zero are fixed

as a difference

[Was: Pt' = 6 pt-1

it

rewritten

- PE-1)

coefficient

are adjusted

8, of the most For discrete

larger

rate,

is

B is, and the

is a weighted

average

(for

and yesterday's experienced f3 would mean that expectations past

to the

expected

II121

prediction static

to be the weight

model

is

are

is

placed

is placed

on the

on the

expectations

identical

current

previous

expectation. The adaptive

ignored.

case where

same as yesterday's.

the more weight less

errors

expectations

to a distributed

153 lag model

which

constrains

the

weights

on past

off exponentially.5 This can easily distributed lag model is written: P; = Apt-,

+ x(1-A)Pt-*

inflation

rates

be demonstrated.

+ h(l-a)2Pt-3

to fall

The relevant

+ -**

Cl31

and similarly

g-1 = Apt-* Multiplying equation

equation Cl31 yields:

+ i(l-A)

[14]

Pt-3

by (1-x)

+ W2Pt-4

+ **.

and subtracting

P; - (1-A)PF-,

the

Cl41

result

from

Cl51

= Apt-,

or Pt' = pt-1 It can be seen is the

that

coefficient

be seen that increasing

for

equation

+ X(P&., Cl61

is the

of expectations. a period

(decreasing),

in which

the

expectations

of change of prices. It can be easily shown that 5This

problem,

constraint as described

also above,

same as equation

From equation

rates and thus one must assume that formation even when they continually rate

cl61

- P;-,)

the

rate will

means that is resolved.

lag

Cl11 it

of inflation always

people do not underestimate adaptive

Cl61

where

x

can alSO is always

realized

inflation

alter their expectations (overestimate) the

expectations

,,!, wi = 1 so that

model the

implies

identification

154 that the economic agent indefinitely. That is, from

now is the

expects the the inflation

same as the

rate

now. 6 This characteristic jump in inflation influences ically.

For this

to specify adaptive Solow

the

Other

researchers

The earliest

attributed

affects

constrained

the

Fisher nominal

weights

three

and n periods

from

usage

in his

relevant.

The

including

effects

have

studies

by

behavioral

lag model

expec-

is generally

investigation

The model

inflation

assump-

of inflationary

original

rates.

on past

do not

explicit

of the

interest

model

(23).

a distributed (8)

this

consider

without

in tests use of

to Irving

inflation

and Parkin

lag models,

have been employed

tations.

they

has had wide

(5),

distributed

two,

employing

horizon

model

Feldstein

expected

rate to continue to exist one period

seems undesirable in that a large one-period short run and long run expectations ident-

expectations

expectations (31),

tions

reason

same inflation rate expected

rates

of how

which

Fisher

to decline

used

arithmetically

and sum to one. A distributed inflationary This

lag

technique

Feldstein Gordon

was used

andEckstein (12).

constrained choose

model

expectations

the

In this

to be included. of goodness-of-fit testing.

There

approach

beyond

Mincer

some popularity

rate

studies

(27)

and in a wage equation

Pyle

approach, path

the

the Almon

weights

lag

in the appears

(19)

to

particular

inflation

be no behavioral

assumption

that

people

The error-learning are

ignored.

on this

point.

Since

the

or adaptive there

are

must

'

observations has been one

researcher

justification use past

(37

by rates

The researcher

hypothesis

(1)

by Yohe and Karnovsky

on past

of a polynomial.

structure.

of the polynomial and the number of past Typically the criterion for these choices

the

in the

in interest

the

predict future values. expectation formation %ee

has gained is

(4),and

to follow order

which

literature

for inflation aspects

is no necessity

is this rates of for

to

155

the weights

on past

identification

inflation

of the

rates

coefficient

in this of price

expectation

model

expectations

to sum one,

is often

not

possible. A final is that the

it

lagged

adjustment

disadvantage is often inflation

rates

(6)

with

lag models

of the

to the

context

whether

expectation

level

regard

in the

distributed to determine

reflect

to some desired

has been noted and Feige

of the

impossible

formation

dependent

adaptive

the

above

coefficients

of

or partial

variable.

expectations

of demand for

described

This model

problem

by Cagan

money equations.

RATIONAL PRICE EXPECTATIONS The concept Muth.

(22)

predictions of the

of "rational"

Muth asserted of future

relevant

price

expectations

which

would

all

economic

was introduced

"expectations, are

theory."

since

essentially (22:316)

they

by John are

informed

the same as the predictions Thus for an individual's

to be rational

come from

variables

the

events,

his

his theory of expectation of the following form:

where

expectations

they must be identical to the predictions To illustrate of the price system. Muth employed a cobweb type model formation, model

Ct = -6Pt

Cl71

Pt = VP; + ut

Cl81

Pt = Ct

Cl91

are measured

Ct = amount

consumed

Pt = amount

produced

(with

as deviations

a fixed

production

from

equilibrium

lag)

values:

(2)

156 pt = market

price

p: = expected

“t

by his

= error

price

level

of zero,

the model

variables that

linear

the

rationality

expected

from price

time

(t-l)

must equal errors

expectations

prices

price predicted an expected

with

values, the

which

this

equilibrium

condition price.

can be written

independent to

can satisfy = pt = 0. Since

shocks,

be formed

as a

Muth found

as a geometrically

that weighted

parameters of the underlying supplyThus rational expectations for demand model determining the weights. this model are of the same form as the adaptive expectations of Cagan. The only

past

equilibrium

distributed,

required of

at

only way in which expectations is if pt = 0 so that E (p,)

case of correlated

sum of normally

average

t formed

= - ; P;

are deviations

For the

time

yielded:

Thus unless B = -y, the the rationality criterion implies

for

constrained the expected price to be the For the case of uncorrelated errors with

$1

the

t

term

Muth then model.

value

at time

substantive

difference

determined by a subjective model and by the parameters In Muth's for

instance,

also

a lagged

then

consumption

the

world

there

is that

the

weights

are

no exogenous

economic

demand was not merely a function income, yt-, , which is exogenous would

on past

prices

are

coefficient of expectations in Cagan's of a structural model in that of Muth. variables.

If,

of current price but to the market considered,

be:

Ct = - @t + Qt-1

c211

157

which

yields: Pt = - ; P; + ; Yt-,

Imposing

the

rationality

- $ ut

condition

that

c221

pf = E(pt)

then

gives

6 p; = B+uyt-1 - $q E(q) Thus expectations considering

past

can no longer

variable

which

identical

are

expectations

has been extended

by A. A. Walters. to predictions

although

identical

to the

employed

they

are formed

rational

and the

from

expected Pt = a$-,

a>0

Walters his

that

expectations the

to a model

(36)

he acknowledged

is one in which

money stock

if

w ithout

income.

The Muth approach exogenous

be rational

[231

of Muth.

price

level

price

change:

+ B(P:

is

- ptel)

an expectations

labeled

model this

encompassing as "consistent"

concept

is formally

The model

a linear

Walters

function

of the

1241

+ et

0<6<1

where

Pt 4 Mt-1 et

= price

level

at time

= price

level

expected

= money stock = error

term

at time

t for t-l

time

t formed

at time

t-l

158 The model expected

was derived rate

from

of change

For expectations For E(et)

a demand

in prices

for

is

money equation

the

only

to be consistent,

= 0, this

lead

in which

the

E(pt)

= pt.

argument.

Walters

required

to:

. P; = aMtsl

+ B(P:

- ptwl)

or pe = m

Thus

expectation

the

sense

levels

of Muth)

the

went

take

The appropriate

expected

and vice

prices

both

(and

past

prices

rational

in

and past

function

this

level,

i.e.,

the

prices

equation

change

between authority

their with

of past

the

expected

the money stock

past

price

above

would

basis

difference

the monetary

rise

function,

lag of

and thus

to the

when prices supply

which

on the

was one in which

related

price

function

solely

level

can be

geometrically

can be written

in terms

alone. article,

Thomas Sargent

and Neil

Wallace

approached

expectations in a similar way to Walters. (29) Sargent reexamined Cagan's hyperinflation model to discover the

implications

of

rational. inflation

account

a money supply

supply

as a distributed

In a recent

adaptive

With

weights

inflationary and Wallace

to be consistent

to be formed

inversely

and actual

versa.

declining past

is

the money supply

represented

into

expectations

money stock

decreases

of

in order

on to specify

consistent

prices.

must

- Bpt-1)

money stock.

Walters

in the

(aMt-1

formation,

of the

allow

1

restricting

From Cagan's expectations is a distributed

money supply.

the demand

formula, lag

inflationary for they

real

expectations cash

derived

function

balances an equation

of rates

to be equation

and his

in which

of change

in the

159

Unless creation,

there they

rational.

was mutual

concluded

Sargent

exact

condition

within

the

polate they

lagged employed

consists

rates

on inflation

There model

and past

Sargent

and Wallace

lagged

rates

beyond

that

the

accounted

least

two substantial

approach.

condition of change

concluded exerted for

agents

The first

consider

problems

is that

with

the

at rational predicitive

defined.

price

the agent the costs costs

price

cost only costs.7

It

expectations

The rational power

This

that

increased

would in the

economic

of a more

of employing buys

little

inflation.

context

sophisticated

In other

consideration

'For an attempt at making expectations operational,

power

would

force

relevant

if

to look

or utility the

added

technique

words, the

there

inflation, rationality

trade-off

forecasting

technique. predictive

of gathering and processing of unanticipated inflation.

of profit should

economic

Since

seem more reasonable agent

rational

one must know the

to be generating

narrowly

maximization.

in

that

by lagged

is no consensus among economists on the process producing this is a serious difficulty. The second problem is that may be too

way

to extra-

essentially

rates

of money creation already

inflation "best

this

which

on future

versa.

that

. . . is

(30)

the

be rational

is

To test

by Sims

not

on to specify

a way that

(29:337)

developed

were

would

The condition in such

and money

(29:342)

are at

which

went

of money creation

inflation

of inflation."

expectations

Walters,

inflation."

the

inflation expectations

expectations

model.

rates

and vice

indicate

influence rates

of

of regressing

data

like

must be related

a procedure

between adaptive

adaptive

subsequent

the money supply "the

which

of Cagan'a

and money creation the

Cagan's

and Wallace, under

context

to forecast

dependence

that

the

benefits

researchers information

against

rational outweigh

to explore as well

the concept of "economically see Feige and Pearce. (7)

the

as the

rational"

160

SURVEY MEASURES OF PRICE EXPECTATIONS In order rather used

to obtain

than

rely

on some model

data

on anticipated

circumvents

agents

use

the

in forming

a paucity of this at the University expectations of these

problem

This

of discovering

relationship

have

some researchers

rates.

expectations.

what There

of economic

unfortunately,

Consumer

surveys

qualitative

undertaken

data plans.

in Mueller

have

approach,

information

is,

to consumption

been summarized

expectations

(21)

on price The results

and Juster

and

(15).

In a recent

paper

from

quantitative in different deMeni1

by deMeni1

the

Survey

measure

of

anticipated

price

inflation Besides

as several is the

a fixed

from

ahead) index

for

business

their

of various

They found

this

distributed

this

horizon.

into

a proxy

as much explanatory

alternative with

survey

converted

measure

lag

raised

handicap

that

The only

other

power by

the

survey

time

series

appears to be the Livingston Survey published twice yearly since 1946. About fifty

academia,

and December

(3)

additional

one year

of quantitative expectations in the Philadelphia Bulletin economists,

expectations.

qualitative

were

had more or at least

there

are for

the

Finances

the many problems

and Bhalla,

responses

and Bhalla,

of Consumer

wage equations 8

measures.

price

inflationary

of expectations, inflation

their

and their

responses

June

of

type of data available. of Michigan have produced

surveys

Wachtel

months

measures

survey

course,

for

direct

and government,

predictions economic

and the wholesale

price

one can derive

the

expected

average

these

indices,

for

horizons

of

used

in tests

of the

(see

8 No comparison below).

Fisher

six

effect

was made with

(for

the

variables, index.

rate,

Livingston

each

and twelve

the

consumer

predictions,

as measured

months. (27)

asked

six

From these

inflation

the

next

including

and twelve by Pyle

were

These

and Gibson Survey

data (11)

measure

by were and in

161 wage models

by Turnovsky

Although

survey

expectations, issue

there

of how well

the

sample

in whose behavior

ments,

for

a lot

average

example, more

that

time

the

by which

reflects

expectations

the

expectations

and expense

into

forecasting

revealed

in survey

measures

expectations

tell

were

of measuring

of course

interested.

question

(12).

method First,

the

we are most

A second

are survey

and Gordon

may reflect

respondent.

expectations

(35)

are an attractive

are some shortcomings.

agents put

and Wachter

measures

is

the

of

the

economic

Interest rate of individuals

movewho

inflation

the

extent

than

to which

responses.

A final by themselves,

us nothing,

is the

true

drawback is of the process

formed.'

SUMMARY AND THOUGHTS OF FUTURE WORK This measuring

paper price

expectations formation

has briefly expectations:

models,

and survey

to include

rates.

The second

specifically

only

points

in applying anticipated

about

inflation 'See

economic

in tests

approach

of hypotheses

because (34)

they

on this

point.

expectation inflation

to be included,

which

economic

agents

issue of how expectations expectations are at there

are major

about

the

more concretely.

which

perceive

to price

problems

effects

of

future research could improve As mentioned above, the costs

must be specified below

limits in past

information process

areas in which expectations.

of inflation

Turnovsky

The first contained

inflation

For each

of time.

inflation level

measures.

The third sidesteps the sampling what individuals'

the proxies inflation.

unanticipated

three major approaches lag models, rational

information

other

of the

There are several our treatment of price threshold

the

allows

the model

view as appropriate. are formed by simply different

reviewed the distributed

little

economic cost

agents

Is there do not worry

in misestimating

of a

162 inflation?

How do the

horizon

over

which

of misestimating received

little

casually.

Finally,

basis

the

out

expectations

Are

the

questions

costs

have

should

also

be treated

needs

to be done on the

relative

costs

individuals

consider

relevant

techniques

might

what

might

confidence be able

effects

should

believe

types

of

One might

of their

Respondents would

These

the

literature.

in the

agents

predictions.

of the

must be formed?

with

which

survey

economic

to find

their

vary

less of different when

expectations.

out what also

inflation

asymmetrical?

forming

More work

of unexpected

expectation

attention of

of information

forming

the

the inflation

The costs types

costs

perceived

future information try

importance

be asked

they

have

in their

whether

this

to test

inflation.

not

only

inflation

rates

will

people

to distinguish

also

of expected

be utilized

of accurate

to give

do employ

is an important

be but in making

among respondents inflation

some quantitative

predictions

to find

so that variable

on

forecasts. indication

researchers influencing

163

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4.

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5.

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6.

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E.L. American

7.

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F-T., Bookings

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17.

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J. "Models of Adaptive Forecasting," Edited by J. Mincer. and Expectations. Bureau of Economic Research, 1969.

20.

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21.

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22.

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J.F. "Rational Expectations and the Theory of Price Movements," Econometrica, Vol. 29, July 1961, pp. 315-335.

23.

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Policy: Some Further Results on the DeterM. "Incomes mination of the Rate of Change of Money Wages," Economica, Vol. 37, November 1970, pp. 386-401.

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27.

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D.H. "Observed Price Expectations Review of Economic and Statistics, pp. 275-280.

28.

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31.

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R.M. Price Expectations and the Manchester: Manchester University

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H. 1971.

New York:

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35.

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36.

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37.

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