optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

measuring inflation expectations a survey data approach expectations of inflation can be important determinants of actual inflation because they influence the process of wage bargaining price setting speculative buying and financial investing decisions englander and stone 1989 a central bank given its primary objective of price stability therefore takes a natural interest in inflationary expectations of economic agents in fact as illustrated by the theoretical work of e g kydland and prescott 1977 and barro and gordon 1983 inflationary expectations of the public are an important factor determining the success of the central bank in achieving its policy goal measures of inflation expectations can be used for monetary policy purposes for example as information variables in the sense defiined by friedman 1993 or as intermediate targets in the so called direct inflation targeting strategy svensson 1996 fuhrer 1997

inflation real economic growth and unemployment expectations an empirical analysis based on the ecb survey of professional forecasters expectations are at the centre of modern macroeconomic theory and policymakers in this article we examine the predictive ability and the consistency properties of macroeconomic expectations using

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

product line design we characterize the product line choice and pricing of a monopolist from the upper envelope of net marginal revenue curves to the individual product demand functions the equilibrium product line constitutes those varieties yielding the highest upper envelope in a generalized vertical differentiation framework the equilibrium line is exactly the same as the first best socially optimal line these upper envelope and first best optimal line findings extend to symmetric cournot oligopoly

direct measurement of popular price expectations expectations are an important determinant of economic behavior the analysis of economic expectations however has suffered from inadequate measurement throughout the literature expectations have been treated as unobservable and have therefore been measured only indirectly the object of this paper is to develop and test a direct measure of the expectations of inflation a particularly critical economic variable a direct measure of inflationary expectations is here taken to be one constructed from a sample survey in which individuals are asked to state their expectations explicitly the paper focuses on a popular forecast of the rate of change of consumer prices in the forthcoming year as calculated from responses to the survey of consumer finances scf this measure is presented in section i the scf and others like it have existed for some time but a few recent studies notwithstanding most economists continue to regard survey measures as inherently unreliable their principal criticism is that the opinions an individual expresses

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

expectations as a source of macroeconomic persistence evidence from survey expectations in a dynamic macro model abstract embedding survey expectations in a standard dsge model helps to identify key slope parameters in standard relationships dramatically reduces the need for lagged dependent variables often motivated by price indexation and habit formation and obviates the need for autocorrelated structural shocks in the key equations formal statistical tests demonstrate that much of the persistence in aggregate data is better accounted for by slow moving expectations rather than by habits indexation and autocorrelated structural shocks

testing the rationality of inflation forecasts from survey data another look at the src expected price change data this paper develops a unified econometric approach for testing the rationality of expectations from survey data series the paper employs the estimation techniques of hansen 1982 and eichenbaum hansen and singleton 1982 to conduct tests of unbiasedness efficiency and orthogonality for the src expected price change data in contrast to the existing literature the analysis takes careful account of serial correlation and conditional heteroskedasticity in the disturbance terms the results do not reject the properties of unbiasedness efficiency or othogonality for this survey data series copyright 1989 by mit press

inflation dynamics the role of expectations the modelling of expectations and its degree of backward looking behaviour are issues of main concern in the in ation dynamics research agenda one approach in the literature is to use expectations from surveys as an approximation to actual expectations this method avoids particular assumptions on expectations and their degree of rationality we estimate the phillips curve allowing for a simultaneous role of rational and survey expectations we formulate both a generalization of the usual phillips curve and a structural version in the spirit of gal and gertler 1999 we flnd that marginal cost determines in ation while the role of detrended output appears to be problematic we also flnd that survey expectations are an important component of in ation dynamics but they do not fully re ect economic agents rationality a signiflcant level of rationality is found even when controlling for survey expectations jel classiflcation e31

do actions speak louder than words household expectations of inflation based on micro consumption data survey data on household expectations of inflation are routinely used in economic analysis yet it is not clear how accurately households are able to articulate their expectations in survey interviews we propose an alternative approach to recovering households expectations of inflation from their consumption expenditures we show that these expectations measures have predictive power for consumer price index cpi inflation they are better predictors of cpi inflation than household survey responses and more highly correlated with professional inflation forecasts except for highly educated consumers consistent with the view that more educated consumers are better able to articulate their expectations we also document that households inflation expectations respond to inflation news as measured by the unpredictable component of inflation predictions in the survey of professional forecasters the response to inflation news tends to increase with households level of education consistent with the existence of constraints on household s ability to process this information

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

monetary policy rules macroeconomic stability and inflation a view from the trenches i estimate a forward looking monetary policy reaction function for the federal reserve for the periods before and after paul volcker s appointment as chairman in 1979 using information that was available to the fomc in real time from 1966 to 1995 the results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods this contradicts the hypothesis based on analysis with ex post constructed data that the instability of the great inflation was the result of weak fomc policy responses to expected inflation a difference is that prior to volcker s appointment policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious drawing on contemporaneous accounts of fomc policy i discuss the implications of the findings for alternative explanations of the great inflation and the improvement in macroeconomic stability since then

survey measures of expected u s inflation of real interest rates and cash flows for decisions concerning investment expenditures international capital flows and exchange rate movements hinge in large part on expected real yield differentials across countries the federal reserve needs reliable measures of expected inflation to formulate and gauge the thrust of monetary policy in fact inflation expectations have become more important to the fed given the diminished stability of the link between the monetary aggregates and gdp expenditures since the early 1980s and the greater role which has been thrust upon expected real short term interest rates in the implementation of federal reserve policy the issue of rationality of inflation expectations that is the extent to which agents form expectations without making systematic mistakes in their beliefs about what inflation will be is important if inflation expectations are formed rationally labor and financial markets will strongly tend to neutralize the potential redistributive effects of inflation over time financial capital will flow efficiently within and across national borders moreover some of the stronger claims of new classical macroeconomics like the claim that only unexpected monetary policy actions will

a test of strategic interaction in monetary policy beginning with an example provided by kydland and prescott 29 a large literature has evolved concerning strategic interaction between the public and a monetary authority in the conduct of monetary policy we undertake a direct test of a fundamental assumption of the strategic monetary policy literature monetary policy games suppose that the monetary authority and the public are aware of the strategic interdependence between them that is these models suppose that the monetary authority chooses an inflation rate that is a function of the public s expected inflation rate and that the public is sophisticated enough to realize that the inflation rate chosen by the monetary authority is a function of its beliefs below we extend cukierman and meltzer s 18 model of ambiguity and credibility in monetary policy to nest other models we then use a novel data set that permits a test of the assumption of strategic awareness for agents in the u s we find support for our extension of the cukierman and meltzer model the new data brought to bear is the federal reserve s forecast of inflation conditional on the monetary policy it chose throughout the sample period the federal open market committee fomc met from eight to twelve times per year to consider various short term monetary policies data on the forecasted paths for the inflation rate growth rate in output and unemployment rate associated with the different monetary policies under consideration is available for some of their meetings it seems reasonable to suppose that the chosen monetary policy satisfies revealed preference in the forecasts of these variables that it and the rejected monetary policies imply therefore in referring to the data we use the terms inflation rate forecast by the federal reserve and inflation rate chosen by the federal reserve interchangeably since theories of time consistent monetary policy have always been cast in the latter terminology the data are especially well suited to a direct test of the theory section i briefly reviews the theoretical literature on monetary policy games and empirical

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

the impacts of public sustainability concerns on length of product line abstract this paper studies how the public sustainability concerns affect a firm s decisions of product line design under different channel structures both centralized distribution channel and decentralized distribution channel are taken into consideration our research shows that the public sustainability concerns can make the centralized firm shorten its product line when the coefficient of consumer mismatching disutility is moderate in addition when the centralized firm makes the decision of product line extension from the aspect of maximizing social welfare a relative low level of the public sustainability concerns can incent it to extend the product line the public sustainability concerns are shown to be able to weaken the positive impact of channel decentralization that has on product line extension when the coefficient of consumer mismatching disutility is moderate as well

monopoly price discrimination and demand curvature this paper presents a general analysis of the eects of monopolistic third degree price discrimination on welfare and output when all markets are served su cient conditions involving straightforward comparisons of the curvatures of the direct and inverse demand functions in the dierent mar kets are presented for discrimination to have negative or positive eects on

financial frictions and policy cooperation a case with monopolistic banking and staggered loan contracts abstract do financial frictions call for cross border policy cooperation this paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks for monetary policy using the linear quadratic lq framework we show that policy cooperation yields long run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle as usually found in models with price rigidities the ramsey optimal steady states differ between cooperation and noncooperation such gains from cooperation arise irrespective of capital account liberalization

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

a more general theory of commodity bundling this paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers whether integrated or separate firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand alone products product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount relative to the model with additive preferences while substitutability is often the sole reason why separate sellers wish to offer inter firm discounts when separate sellers coordinate on an inter firm discount they can use the discount to overturn product substitutability and relax competition

testing the rationality of inflation expectations derived from survey data a structure based approach following the inspiration of muth 21 expectations are said to be rational if the subjective probability distribution of expected outcomes coincides with the objective probability distribution of actual outcomes in practical applications however it is common to employ the so called weak form version of this hypothesis which defines rationality as equality between the expected outcome and the objective mathematical expectation conditional on all data available at the time the expectation is formed thus expectations of inflation are said to be weakly rational in muth s sense if

monopoly product differentiation and economic welfare abstract this paper discusses the pricing behavior of a monopolistic producer supplying several quality differentiated goods by using a model of a lancasterian characteristic approach with consumer s taste pattern dispersed it examines how finer product differentiation which is made by the producer by means of the introduction of a new good changes the price structure and consumer s welfare it will be establised that the entry of a new good imposes quite different impacts on the price of the goods of higher quality and on those of lower quality goods

measuring the level and uncertainty of trend inflation abstract firmly anchored inflation expectations are widely viewed as playing a central role for the conduct of monetary policy this paper presents estimates of trend inflation based on information contained in monthly data on realized inflation survey expectations and the term structure of interest rates in order to assess whether inflation expectations are anchored a timevarying volatility of trend shocks is estimated as well while there is some commonality in inflation and survey based estimates of trend inflation yield based trend estimates embed a highly persistent component orthogonal to trend inflation trimmed mean inflation rates and survey forecasts are most indicative of trend inflation

inflationary expectations and rationality revisited abstract we find evidence indicating cointegration between each of three survey measures of inflation expectations and actual inflation using johansen s framework we confirm weak form rationality for each survey and estimate significant speeds of adjustment for both inflation and inflation expectations

another look at the rationality of the livingston price expectations data 1990 another look at the rationality of the livingston price expectations data applied economics vol 22 no 4 pp 477 485

real exchange rate dynamics revisited a case with financial market imperfections abstract in this paper we investigate the relationship between real exchange rate dynamics and financial market imperfections for this purpose we first construct a new open economy macroeconomics noem model that incorporates staggered loan contracts as a simple form of the financial market imperfections our model with such a financial market friction replicates persistent volatile and realistic hump shaped responses of real exchange rates which have been thought very difficult to materialize in standard noem models remarkably these realistic responses can materialize even with both supply and demand shocks such as cost push loan rate and monetary policy shocks this implies that the financial market development is a key element for understanding real exchange rate dynamics

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

price expectations in the united states 1947 75 it is common to assume that expectations about future inflation influence economic behavior the behavior of an economic system over time is determined in part by the manner in which these expectations are formed theoretical and empirical investigations frequently utilize a hypothesis that agents forecast future inflation rates primarily on the basis of past inflation rates static adaptive extrapolative and regressive expectations adjustment schemes are examples of such forecasting rules 1 but such rules generally ignore the fact that individuals observe prices not inflation rates a change in observed prices can result from general price inflation but it may also result from transitory shocks to the price level or observation error similarly apparent changes in the general inflation rate may be purely transitory in nature or may signify the beginning of a trend a model of inflation expectations should admit the possibility of these different sources of price change and embody the natural human tendency to extrapolate seeming trends this paper examines the extent to which agents reported price expectations are consistent with such naive forecasting a multilevel adaptive expectations model is developed that takes observed prices as the information available to agents on the basis of these prices individuals revise their beliefs about not only the price level but also the underlying inflation rate and trend in the inflation rate when fitted to the livingston survey data the model appears to provide a unified explanation of price expectations in the united states from 1947 to 1975 this is contrasted with earlier investigations suggesting that expectations formation differed significantly in the periods before and after 1960

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

economic forecasts rationality and the processing of new information over time this study analyzes real gnp and inflation forecasts published in the blue chip economic indicators the survey revises annual growth rate estimates every month thus making it possible to analyze the value of new information and its contribution to the estimates predictive power of the actual values if information is used efficiently updated forecasts should provide more accurate predictions the empirical results suggest that the revised forecasts of real gnp growth and inflation incorporate new information in a rational manner in addition the most recent inflation forecasts are found to be unbiased estimates on the actual rate of inflation copyright 1990 by ohio state university press

when is price discrimination profitable we consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable we show that an important condition for profitable price discrimination is that the percentage change in surplus i e consumers total willingness to pay less the firm s costs associated with a product upgrade is increasing in consumers willingness to pay we refer to this as an increasing percentage differences condition and relate it to many known results in the marketing economics and operations management literatures

macroeconomic expectations of households and professional forecasters economists have long emphasized the importance of expectations in determining macroeconomic outcomes yet there has been almost no recent effort to model actual empirical expectations data instead m acroeconomists usually simply assume that expectations are rational this paper shows that while empirical household expectations are not rational in the usual sense expectational dynamics are well captured by a model in which households views derive from news reports of the views of professional forecasters which in turn may be rational the model s estimates imply that people only occasionally pay attention to news reports this inattention generates stickyness in aggregate expectations with important macroeconomic consequences

more flexible use of survey data on expectations in macroeconomic models a flexible procedure is proposed whereby both the random and systematic errors in measurement of survey data on inflation expectations can be appropriately handled when these surveys are used in the estimation of macroeconomic models during the period 1952 1980 livingston s two expectations series and the src series systematically underestimated inflation expectations by nearly 25 the asa nber survey however does not exhibit such underestimation thus the use of the livingston or src data as an unbiased measure of the true expectations of inflation would result in overestimation of the fisher effect and the ex ante real interest rate

smoothed interest rate setting by central banks and staggered loan contracts i investigate a new source of economic stickiness namely staggered loan interest rate contracts under monopolistic competition this study introduces this mechanism into a standard new keynesian model simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts although a response to a productivity cost push or monetary policy shock is not much affected i derive an approximated loss function and analyse optimal monetary policy unlike other models the function includes a quadratic loss of the first order difference in loan rates thus central banks have an incentive to smooth the policy rate

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

impact of bank competition on the interest rate pass through in the euro area this article analyses the impact of loan market competition on the interest rates applied by euro area banks to loans during the period 1994 2004 using a novel measure of competition called the boone indicator we find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products in line with expectations this result implies that stronger competition causes both lower bank interest rates and a stronger pass through of market rate changes into bank rates evidence of the latter is also presented by our error correction model ecm for bank rates further banks compensate income losses from increased loan market competition by offering lower deposit rates our findings with respect to the loan market rates have important monetary policy implications as they suggest that measures to promote competition in the european banking sector are likely to render the monetary policy transmission mechanism more effective

the properties of product line prices abstract we study multi product cournot suppliers a monopoly is a special case who offer menus of differentiated qualities under conditions that include linear and constant elasticity demand specifications the equilibrium price for each quality is equal to its price in a single product cournot market a corollary is this a monopolist who naively ignores the substitutability of her products by choosing the standalone monopoly price for each quality successfully implements the optimal discriminatory scheme under other reasonable specifications the equilibrium prices are close to the single product prices we also evaluate the impact of minimum quality standards

fitting observed inflation expectations abstract the paper provides evidence on the extent to which inflation expectations generated by a standard christiano et al 2005 smets and wouters 2003 type dsge model are in line with what observed in the data we consider three variants of this model that differ in terms of the behavior of and the public s information on the central banks inflation target allegedly a key determinant of inflation expectations we find that i time variation in the inflation target is needed to capture the evolution of expectations during the post volcker period ii the variant where agents have imperfect information is strongly rejected by the data iii inflation expectations appear to contain information that is not present in the other series used in estimation and iv none of the models fully capture the dynamics of this variable

inflationary expectations and rationality abstract evidence of a cointegrating vector of 1 1 between actual and expected inflation rates supports the rational expectations hypothesis the paper also illustrates the caution one must exercise when applying modern time series econometrics techniques in finite samples

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

perceived inflation persistence this article constructs and estimates a measure called perceived inflation persistence that can be used to determine if professional forecasters inflation forecasts indicate there has been a change in inflation persistence this measure is built via the implied autocorrelation function that follows from the estimates obtained using a forecaster specific state space model findings indicate that u s perceived inflation persistence has changed since the mid 1990s with more consensus among forecasters at lower levels of persistence when compared to the autocorrelation function for actual inflation forecasters typically react less to shocks to inflation than the actual inflation data would suggest

some evidence on the empirical significance of credit rationing this paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988 while commercial loan rates are sticky consistent with rationing this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory in addition the proportion of new loans issued under commitment does not increase significantly when credit markets are tight despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing overall the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon

models of inflation expectations formation a comparison of household and economist forecasts comment in the third section of his paper models of inflation expectations formation a comparison of household and economist forecasts gramlich 1983 presents statistics suggesting that two survey measures of inflation expectations are biased and inefficient in this comment we show that the main results presented in his table 1 are generated using a misspecified model when the specification error is corrected we find that the michigan survey of household inflation expectations passes the standard tests for unbiasedness and weak tests for efficiency 1 however there remains doubt about the properties of the inflation expectation series derived from the livingston survey of professional economists 2 the particular results we review were presumably generated from ordinary leastsquares ols estimation of the following equation equation 2 in gramlich