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Internal consistency of household inflation expectations: Point forecasts vs. density forecasts

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  • Zhao, Yongchen

Abstract

We examine the internal consistency of US households’ inflation expectations reported as point and density forecasts by the New York Fed’s Survey of Consumer Expectations. We find that the majority of the households report well-defined histograms, with their central tendencies close to the corresponding point forecasts. We observe higher levels of consistency in forecasts reported by survey respondents with higher levels of income, education, and financial literacy. Furthermore, our results suggest that both the point forecasts directly reported and those derived from the histograms are more accurate when they are from respondents who are more likely to report consistent forecasts. In addition, we find that the consensus derived using only the consistent forecasts is as accurate as the consensus derived using all forecasts.

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  • Zhao, Yongchen, 2023. "Internal consistency of household inflation expectations: Point forecasts vs. density forecasts," International Journal of Forecasting, Elsevier, vol. 39(4), pages 1713-1735.
    • Handle: RePEc:eee:intfor:v:39:y:2023:i:4:p:1713-1735
    DOI: 10.1016/j.ijforecast.2022.08.008
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    Cited by:

    1. Goldfayn-Frank, Olga & Kieren, Pascal & Trautmann, Stefan, 2024. "A Choice-Based Approach to the Measurement of Inflation Expectations," Working Papers 0742, University of Heidelberg, Department of Economics.
    2. Becker, Christoph & Dürsch, Peter & Eife, Thomas A. & Glas, Alexander, 2023. "Households' probabilistic inflation expectations in high-inflation regimes," FAU Discussion Papers in Economics 01/2023, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    3. Zhao, Yongchen, 2024. "Uncertainty of household inflation expectations: Reconciling point and density forecasts," Economics Letters, Elsevier, vol. 234(C).
    4. Pavlova, Lora, 2024. "Framing effects in consumer expectations surveys," ZEW Discussion Papers 24-036, ZEW - Leibniz Centre for European Economic Research.

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