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Information-Induced Heteroscedasticity in Price Expectations Data

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  • Fishe, Raymond P H
  • Idson, Todd L

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.

Suggested Citation

  • Fishe, Raymond P H & Idson, Todd L, 1990. "Information-Induced Heteroscedasticity in Price Expectations Data," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 304-312, May.
  • Handle: RePEc:tpr:restat:v:72:y:1990:i:2:p:304-12
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    Cited by:

    1. Lahiri, Kajal & Zhao, Yongchen, 2015. "Quantifying survey expectations: A critical review and generalization of the Carlson–Parkin method," International Journal of Forecasting, Elsevier, vol. 31(1), pages 51-62.
    2. Menz, Jan-Oliver & Poppitz, Philipp, 2013. "Households' disagreement on inflation expectations and socioeconomic media exposure in Germany," Discussion Papers 27/2013, Deutsche Bundesbank.
    3. Kajal Lahiri & Yongchen Zhao, 2013. "Quantifying Heterogeneous Survey Expectations: The Carlson-Parkin Method Revisited," Discussion Papers 13-08, University at Albany, SUNY, Department of Economics.
    4. Nolte, Ingmar & Pohlmeier, Winfried, 2007. "Using forecasts of forecasters to forecast," International Journal of Forecasting, Elsevier, vol. 23(1), pages 15-28.
    5. Pfajfar, D. & Santoro, E., 2008. "Asymmetries in Inflation Expectation Formation Across Demographic Groups," Cambridge Working Papers in Economics 0824, Faculty of Economics, University of Cambridge.
    6. Langche Zeng, 2000. "A Heteroscedastic Generalized Extreme Value Discrete Choice Model," Sociological Methods & Research, , vol. 29(1), pages 118-144, August.

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