Survey Evidence on Expectations Formation

Abstract

We now turn to the results of surveys of expectations. As outlined in 1.2 above, there are a large number of surveys of agents’ views about the future. While many are limited to the expected change in consumer prices, others refer to wholesale prices, wages or interest rates. In this chapter we review ways of testing for the various expectations mechanisms described in chapters 1 and 2, and then go on to consider the evidence from a number of individual surveys to see which explanations are supported by the data. Surveys are the only way of measuring expectations directly and so, while we must bear in mind the various weaknesses discussed in 1.2 above, they can still provide evidence in favour of (or against) the alternative expectations mechanisms. One particular area of interest is the rational expectations hypothesis. As was seen in chapter 2, this hypothesis has many attractions, and immediately raises the question of whether it is an accurate description of agents’ actions. Much of the literature on expectations surveys has tried to answer this question, as we will see below. First, however, we will look at the techniques available for assessing the evidence.