ABSTRACT
In the United States, the use of survey data on price expectations obtained as part of the Michigan, Livingston and ASA-NBER surveys has a long tradition.4 By contrast, measures of inflation expectations derived from surveys conducted in the member states of the European Union have received little attention until recently. This chapter analyses survey measures of expected inflation for four major EU member countries, Germany, France, Italy and the United Kingdom. The data are taken from the European Commission’s Consumer Survey and from the Survey of Professional Experts conducted by the London-based institute Consensus Economics. Drawing on these two sources enables us to compare the relative performance of household versus expert forecasts of inflation. The survey data, and the method used for quantifying the qualitative data from the Consumer Survey, are described in Section 2. Section 3 compares the predictive power of the two sets of survey expectations and submits them to standard tests of unbiasedness and informational efficiency. While most of them pass the test of unbiasedness, the orthogonality tests indicate the surveyed households and experts did not make efficient use of all the information available at the time they formed their expectations. As a next step, we analyse the dynamic interactions of the survey expectations and the subsequently realized inflation rates in an error correction framework. Finally, to shed more light on expecta-
tions formation, and the inflation process, we estimate simple trivariate VARs of inflation, one-year-ahead inflation expectations and output. Section 5 summarizes the findings and discusses their monetary policy implications.
