Given the nature of this question, the inter-quartile range is best interpreted as dispersion rather than disagreement. The results around the height of the financial crisis are striking: the median response fell from just under 3 percent to just above 0 percent as many more respondents opted for the “stayed where they are now” option. Moreover, these low median expectations of wage growth appear unaffected by the recovery in economic activity. The dispersion of responses around the median is relatively high, although lower than before the crisis. The individual uncertainty around wage growth is lower than around inflation but interestingly does show some increases coincident with accelerations in economic activity during the recovery which we don’t find in individual inflation uncertainty. Turning to the second set of general questions I started with, knowing how consumers form expectations and revise them in response to new information is relevant for many aspects of monetary policy. As noted previously, the large cross-sectional variation in inflation forecasts  BIS central bankers’ speeches  5  across survey respondents is inconsistent with the traditional rational expectations framework in which all agents are assumed to share the same information set and expectations. This has led to alternative models in which this heterogeneity is explained by a reliance of agents on different models for forecasting, the use of different information sets and different capabilities for processing information. While in a full-information, rationalexpectations world there is no role for constant central bank communication, such a role becomes crucial in a world with learning.

Since in our survey we have utilized a panel design, we will have the ability to make progress in understanding how expectations are formed and revised over time. Initial analysis suggests that the differences in individual forecasts are persistent and probably related to different forecast models and reference information and not just different experiences. We have also found that a respondent expressing higher-than-average uncertainty in the previous survey is more likely to change their point forecast in the current survey. A better understanding of the factors affecting individual inflation expectations will also help evaluate and predict the impact and effectiveness of central bank policy decisions and communication strategy. Specifically, it will improve the central bank’s capacity to evaluate the strengths and weaknesses of various communication tools and strategies designed to keep inflation expectations well anchored. The ability to do so is especially important at times such as the current one, in which central banks have been expanding their toolkits and conducting traditional as well as non-traditional monetary policy. The third and final broad question that would benefit from additional research is whether and how people act on their expectations. The theoretical link between inflation expectations and realized inflation and consumer decisions occurs through several channels. In addition to affecting future wages and prices through influencing the outcomes of nominal wage contract negotiations and through price-setting behavior of firms, there is the crucial link of real interest rates (nominal rates less expected inflation) with intertemporal consumption and investment decisions.