Information-Induced Heteroscedasticity in Price Expectations Data

Raymond P. H. Fishe · Todd L. Idson

14 citations0/0 files storedThe Review of Economics and Statistics

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Monetary Policy and Economic Impact Economics of Agriculture and Food Markets Forecasting Techniques and Applications

Abstract

This study tests the hypothesis that price expectations differ across individuals because they acquire different information about inflation. If price information is a normal good, then the amount of price information acquired will vary across individuals according to income, education, and other demand-specific variables, causing price expectations to be heteroscedastic with respect to these variables. Utilizing monthly household survey data, the authors test the heteroscedasticity hypothesis and find support for the differential information model. In addition, they develop a novel method of incorporating the "don't know" response to questions about inflation into the estimation of price expectations. Copyright 1990 by MIT Press.

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References

1981Perceived and Expected Rates of Inflation in Sweden 1979Differential Inflationary Expectations and the Variability of the Rate of Inflation: Theory and Evidence 1983Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts 1975Are Price Expectations Normally Distributed?1974A general theory of demand for information about product quality 1975Variation Across Household in the Rate of Inflation 1981Aggregate expectations under the stable laws 1986Price perception in creeping inflation: Report on an enquiry

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