For instance, for a given individual, the perceived probability of making large purchases over the next 4 months (home appliances, electronics, furniture, home repairs, improvements or renovations, autos or other vehicles) is highly correlated with actual purchases of those items 4 months later. Household spending growth expectations (over the next 12 months) are also significantly associated with self-reported actual spending growth 12 months later. In the labor market realm, the perceived probability of finding a job over the next 3 months accurately predicts actual transitions from unemployment to employment, in those 3 months. And the expected arrival rate of job offers is predictive of actual job offers over a 4-month horizon. So the evidence suggests that the subjective expectations we measure are indeed informative of future events, with individuals more likely to experience an event typically reporting a higher expectation of the event occurring. 10  BIS central bankers’ speeches  possible changes in expectations coming from changes in sample composition. In particular, we looked at the group of respondents who completed the survey both in September 2015 and in January 2016, and compared their three-year-ahead inflation expectations as measured by the individual density means across the two surveys.37 As shown in Slide 9, we found that the entire distribution of medium-term inflation expectations shifted to the left, indicating a widespread decline in expectations. Median expected inflation among these repeat respondents declined by 53 basis points, compared to 39 basis points without controlling for the changing sample composition.

In monetary policymaking, central bankers have long pointed out the importance of measuring the expectations of financial market participants, households, and firms – especially with regard to inflation and the central bank’s so-called “reaction function” to changes in the economic outlook. For example, measuring market participants’ expectations for the policy rate path sheds light on both the central bank’s effectiveness in communicating its policy intentions and the transmission of anticipated future monetary policy actions into financial conditions. Inflation expectations of households, firms, and other economic agents influence a variety of decisions, including those related to consumption, saving, investment, and the setting of prices and wages, as well as the determination of the real interest rates that influence these decisions. The aggregation of these choices in turn determines realized inflation in equilibrium. Thus, inflation expectations are a crucial determinant of actual inflation and, as such, need to be carefully monitored. Further, the effectiveness of monetary policy and central bank communication relies on longer-run inflation expectations being wellanchored, making their reliable measurement very important for policymakers. More generally, expectations by consumers and businesses about a number of household, firmlevel, and economy-wide outcomes are increasingly useful inputs into a variety of forecasting and “now-casting” models. In addition to tracking measures of expectations implied by asset prices, central banks today rely increasingly on survey-based measures of subjective expectations. At the New York Fed, we conduct a diverse set of surveys to measure policy-relevant expectations.