Formation of Price and Cost Inflation Expectations in British Manufacturing Industries: A Multi-Sectoral Analysis

Kevin C. Lee

42 citations0/0 files storedThe Economic Journal

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

Abstract

The process by which agents form expectations on price and cost inflation is investigated. Measures of expectations of these series, derived from qualitative survey responses in nine industrial sectors covering UK manufacturing between 1972-1989, are described, and the ‘rationality' of these expectations tested. Rationality is not rejected in many sectors, and the evidence against rationality much weakened in other sectors, if tests take into account a particular form of conversion error. The possible effect of aggregation bias in the tests is noted, as rationality is rejected with more confidence with aggregated data than when the sectoral data is considered individually.

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References

1989The limits to rational expectations 1980Survey evidence on the ‘rationality’ of interest rate expectations 1992On the Time Shape of Economic Microvariables and the Munich Business Test 1972A Test of the "Expectations Hypothesis" Using Directly Observed Wage and Price Expectations 1985Formation of Inflation Expectations in British Manufacturing Industries 1982Expectations, output and inflation 1992CONSUMER PRICE PERCEPTIONS AND EXPECTATIONS *

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2002Quantification of Qualitative Firm‐Level Survey Data 1994Cointegration and direct tests of the rational expectations hypothesis 2017Evolutionary Computation for Macroeconomic Forecasting 1998Are U.K. Inflation Expectations Rational?2011The utility of expectational data: Firm-level evidence using matched qualitative–quantitative UK surveys 2002CONSUMERS' INFLATION EXPECTATIONS AND MONETARY POLICY IN EUROPE 2002The use of non-normal distributions in quantifying qualitative survey data on expectations

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