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Vol. 68, No. 1, pp. 64-83 (2017)

“A Note on the Measurement of the Uncertainty of Surveyed Inflation Expectations”
Naohito Abe (Institute of Economic Research, Hitotsubashi University), Yuko Ueno (Cabinet Office, Government of Japan)

Although inflation expectations are one of the most important and influential macroeconomic variables today, there are no established methods to measure them in an accurate manner. Given that inflation expectations are usually heterogeneous among agents, they are so in terms not only in their average levels but also in their variances or distributions. Unfortunately, few surveys ask the agents about their subjective probability distributions of these expectations, while most surveys ask solely for their point estimates. Binder (2015) proposes a novel and innovative methodology to estimate the individual subjective probability distribution from the surveyed point estimates. In this study, we analyze the consistency between the estimated uncertainty measure proposed by Binder (2015) and the variances based on the subjective probability distribution from our original survey results. We find that the correlation between Binder’s measure and subjective variances are not necessarily distinct once we control for the impact of individual characteristics. However, we find her method of estimating the subjective variances of inflation expectations to be useful, even though its contribution is somewhat limited.