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Overcoming Measurement Error Problems in the use of Survey Data on Expectations

Author

Listed:
  • Kalvinder Shields
  • Kevin Lee

Abstract

Survey data frequently requires conversion from qualitative responses to quantitative series. A commonly cited criticism of the use of the survey data is that the conversion procedures incorporate measurement errors which render the series unusable. In this paper, we provide a novel contribution to the literature by paying attention to the nature of, and the treatment of, the measurement error that arises when such a conversion takes place. Such an error is frequently ignored or assumed to be orthogonal to known information. The contributions of this paper are three-fold. Firstly, simulation experiments show that the conversion error is systematic in it's relation to known information and show that need for the adequate treatment of conversion errors is essential. Secondly, this paper formally shows that the procedure proposed by Lee (1994), which employs a relatively weak assumption, is extremely successful in circumventing the problems. Finally, in contrast to previous findings, these results provide strong support for the view that expectations are formed rationally in the case of Australian total manufacturing output

Suggested Citation

  • Kalvinder Shields & Kevin Lee, 2004. "Overcoming Measurement Error Problems in the use of Survey Data on Expectations," Econometric Society 2004 Australasian Meetings 107, Econometric Society.
    • Handle: RePEc:ecm:ausm04:107
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    References listed on IDEAS

    as
    1. Smith, Jeremy & McAleer, Michael, 1995. "Alternative Procedures for Converting Qualitative Response Data to Quantitative Expectations: An Application to Australian Manufacturing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 165-185, April-Jun.
    2. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 269-298.
    3. Bonham, Carl S & Cohen, Richard H, 2001. "To Aggregate, Pool, or Neither: Testing the Rational-Expectations Hypothesis Using Survey Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 278-291, July.
    4. Fiebig, Denzil G, 1985. "Evaluating Estimators without Moments," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 529-534, August.
    5. Lee, Kevin C, 1994. "Formation of Price and Cost Inflation Expectations in British Manufacturing Industries: A Multi-Sectoral Analysis," Economic Journal, Royal Economic Society, vol. 104(423), pages 372-385, March.
    6. Common, Michael S, 1985. "Testing for Rational Expectations with Qualitative Survey Data," The Manchester School of Economic & Social Studies, University of Manchester, vol. 53(2), pages 138-148, June.
    7. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
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    Cited by:

    1. Kevin Lee & Michael Mahony & Paul Mizen, 2020. "The CBI Suite of Business Surveys," Economic Statistics Centre of Excellence (ESCoE) Technical Reports ESCOE-TR-08, Economic Statistics Centre of Excellence (ESCoE).
    2. Wändi Bruine de Bruin & Michael F. Bryan & Simon M. Potter & Giorgio Topa & Wilbert Van der Klaauw, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York.
    3. Barnett, Alina & Groen, Jan J J & Mumtaz, Haroon, 2010. "Time-varying inflation expectations and economic fluctuations in the United Kingdom: a structural VAR analysis," Bank of England working papers 392, Bank of England.

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    More about this item

    Keywords

    Measurement Error; Survey-based Expectations; Rationality; Conversion Procedures;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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