Price Expectations in the United States: 1947-1973

Rodney L. Jacobs

38 citations0/0 files storedRePEc: Research Papers in Economics

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Monetary Policy and Economic Impact Forecasting Techniques and Applications Economic theories and models

Abstract

It is common to assume that expectations about future inflation influence economic behavior. The behavior of an economic system over time is determined in part by the manner in which these expectations are formed. Theoretical and empirical investigations frequently utilize a hypothesis that agents forecast future inflation rates primarily on the basis of past inflation rates: static, adaptive, extrapolative, and regressive expectations adjustment schemes are examples of such forecasting rules.1 But such rules generally ignore the fact that individuals observe prices, not inflation rates. A change in observed prices can result from general price inflation, but it may also result from transitory shocks to the price level or observation error. Similarly, apparent changes in the general inflation rate may be purely transitory in nature or may signify the beginning of a trend. A model of inflation expectations should admit the possibility of these different sources of price change and embody the natural human tendency to extrapolate seeming trends. This paper examines the extent to which agents' reported price expectations are consistent with such naive forecasting. A multilevel adaptive expectations model is developed that takes observed prices as the information available to agents. On the basis of these prices, individuals revise their beliefs about not only the price level but also the underlying inflation rate and trend in the inflation rate. When fitted to the Livingston survey data the model appears to provide a unified explanation of price expectations in the United States from 1947 to 1975. This is contrasted with earlier investigations suggesting that expectations formation differed significantly in the periods before and after 1960.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 38 citations exist upstream.

References

1956The monetary dynamics of hyperinflation 1960Optimal Properties of Exponentially Weighted Forecasts 1976Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?1977A Study of Price Forecasts 1970Empirical Evidence on the Formation of Price Expectations 1976Inflation and the formation of expectations 1976Adaptive and regressive expectations in a rational model of the inflationary process 2008Managerial reasoning about aspirations and expectations

Cited by

2000Government competence, economic performance and endogenous election dates 1996An Empirical Examination of Information Barriers to Trade in Insurance 1987Systems Simulation. Expectation formation in behavioral simulation models 1992The relationship between forecast dispersion and forecast uncertainty: Evidence from a survey data—arch model 2004It's Not Whether You Win or Lose, but How You Play the Game: Self-Interest, Social Justice, and Mass Attitudes toward Market Transition

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.