Introduction

Economic models involving inflationary expectations usually treat them as being uniform across all individuals in the economy at a given time [e.g., Sargent (1973), Cukierman (1977), Turnovsky (1977)]. This is dictated more by analytical convenience than by reality. The little directly observed data that exist on inflationary expectations suggest that at the same time different people may have widely differing views about the future rate of inflation. This observation is based on data from two surveys of inflationary expectations in the United States: the Livingston survey of forecasters and the University of Michigan Survey Research Center (SRC) consumer survey.

The Livingston survey of forecasters and business economists was begun in 1947 by Joseph A. Livingston, a newspaper columnist. (The survey is currently maintained and updated by the Federal Reserve Bank of Philadelphia.) The number of survey respondents is usually between 30 and 75. A consistent time series for the expected rate of inflation in the consumer price index (CPI) has been constructed from this semiannual survey by John Carlson (1977).

The SRC at the University of Michigan includes a question about inflationary expectations in its quarterly consumer survey. Until 1966 the survey obtained only qualitative information about the expected direction of price change. Starting in 1966, respondents who expected price increases were also asked how much of an increase they anticipated. In recent years the question has been improved to allow an open-ended response.