Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise (WP-17-10)
Charles F. Manski
Economists commonly suppose that persons have probabilistic expectations for uncertain events, yet empirical research measuring expectations was long rare. The inhibition against collection of expectations data has gradually lessened, generating a substantial body of recent evidence on the expectations of broad populations. This paper first summarizes the history leading to development of the modern literature and overviews its main concerns. Manski then describes research on three subjects that should be of direct concern to macroeconomists: expectations of equity returns, inflation expectations, and professional macroeconomic forecasters. He also describes work that questions the assumption that persons have well-defined probabilistic expectations and communicate them accurately in surveys. Finally, Manski considers the evolution of thinking about expectations formation in macroeconomic policy analysis. He favorably observes the increasing willingness of theorists to study alternatives to rational expectations assumptions, but expresses concern that models of expectations formation will proliferate in the absence of empirical research to discipline thinking. To make progress, Manski urges measurement and analysis of the revisions to expectations that agents make following occurrence of unanticipated shocks.