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New York Fed Survey of Consumer Expectations June 2014 James McAndrews The views presented here are those of the author and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Elicitation of Probabilistic Beliefs What do you think is the percent chance that, over the next 12 months: the rate of inflation will be 12% or more the rate of inflation will be between 8% and 12% the rate of inflation will be between 4% and 8% the rate of inflation will be between 2% and 4% the rate of inflation will be between 0% and 2% the rate of deflation will be between 0% and 2% the rate of deflation will be between 2% and 4% the rate of deflation will be between 4% and 8% the rate of deflation will be between 8% and 12% the rate of deflation will be 12% or more % Total ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ To verify that your responses add up to 100%, press “Add.” 2 Example of Fitted Density Mean Median IQR 6.2 5.4 5.9 Chart 1: Inflation Expectations One-year and three-year ahead expected inflation rates 4 Chart 2: Home Price Change Expectations Median expected home price change, one-year ahead 5 Chart 3: Commodity Price Change Expectations One-year ahead 6 Chart 4: Earnings Growth Expectations Median expected earnings growth, one-year ahead 7 Chart 5: Household Income Growth Expectations Median point prediction, one-year ahead 8 Chart 6: Change in Credit Availability 9 Chart 7: Inflation Uncertainty One-year ahead Income Education Numeracy 10 Possible Explanations for Consumers’ Greater Dispersion of Expectations and Greater Right-Skewness • Different inflation concepts • Differences in information set and expectationformation process • Differences in numeracy, cognitive skills, understanding • Loss aversion 11 Chart 8: Dispersion in Survey of Consumer Expectations Point Forecast 12 Chart 9: Median Inflation Expectations Blue Chip Survey (BC) and Survey of Professional Forecasters (SPF) 13 Chart 10: Dispersion in Inflation Expectations Blue Chip Survey (BC) and Survey of Professional Forecasters (SPF) 14