respondents such as age, gender, education and income. however, the differences in responses across demographic groups far exceed the variations in inflation experienced by the groups. when we probed survey respondents about their understanding of changes to “ prices in general ” ( the michigan survey question ), we found that a significant fraction believed we were inquiring about the prices they themselves recently paid – often prices that had increased or decreased markedly, such as those for food or gasoline. this tendency to think more about prominent price changes in one ’ s own experience is less common among respondents with higher financial literacy. by contrast, when we asked about expectations for the “ rate of inflation, ” respondents tended to think less about a few salient price changes specific to their own experiences and more about price changes across a broader set of items or about changes in the cost of living – a result that aligns more with economists ’ definition of inflation as a sustained increase in the overall price level. asking about the rate of inflation directly therefore produces answers more consistent with the concept of forward inflation expectations of interest to central banks. chart 4 plots the time series of median responses from our experimental survey to a “ prices in general ” question and a rate of inflation question. one can see that the median expectation for the rate of inflation question is less variable. we also find that the dispersion of responses is significantly larger with the “ prices in general ” question. further, in our initial investigations we had established evidence that many respondents would prefer to give a range rather than a point estimate and that most households were able to answer questions about their uncertainty over future inflation. we had also found our measure of individual forecast uncertainty to be positively correlated with the width of any range of responses given to the standard point forecast questions. thus, we added questions eliciting from our panel their subjective uncertainty about future inflation. i will show you an example of such a question in a minute. as emphasized above, anchoring forward inflation expectations is crucial for monetary policy. in the michigan survey, information on forward inflation expectations is generated by a question asking about “ the change in prices in general over the next 5 to 10 years. ” our initial exploratory work confirmed that many households were confused by this wording but that there was overwhelming evidence that long - term average expectations were being reported. considering the rather elaborate structure of the michigan questions shown in chart 5, it also appears that small changes in the various challenges could lower the median response by a significant margin

. why do we do this? why is it important to generate insights about individual workers rather than relying just on analysis of the aggregate data? the first, and most obvious, point is that the aggregate masks the experiences of individuals. not all workers and consumers experience the economy in the same way. employment, wage and income growth, housing, education, credit and a host of other outcomes vary significantly across different cohorts of individuals and these differences in turn can vary over the business cycle. to understand important economic concepts like full employment, financial security, productivity growth and the impact of education, it is vital to understand not just the average experience but rather how all cohorts of the population are faring. this understanding is important in and of itself, especially in evaluating the impact of critical trends affecting the economy, like technological innovation or demographics, as well as the policies intended to respond to the impacts of those trends. we cannot fully understand whether policies have improved social welfare unless we understand how the impact of those policies varies across individuals. but understanding heterogeneity is important even if we are just examining policy impact in the 1 / 2 bis central bankers'speeches aggregate. the most innovative macroeconomic models, those at the frontier of current economic work, recognize heterogeneity across consumers in assessing how monetary and fiscal policy changes are transmitted through the economy. these models incorporate individuals with different marginal propensities to consume, with different amounts of wealth or access to borrowing, or who face different risk exposures, such as the chance they become unemployed, over the business cycle. incorporating these factors can yield quite distinct insights about how changes in monetary or fiscal policy can affect growth, employment, wages and inflation. for those who want to know more, we published a blog post on monday of last week that describes the output of just such a model. regardless of the specific details, the key is that differences across individuals can be important for understanding how the economy works, even in the aggregate. for all these reasons, the research group at the new york fed is committed to continue our work on heterogeneity, across several dimensions of what we do. we are always looking for ways to expand and deepen our knowledge, to enhance the data that is available to our economists and others to do deep, sophisticated research on these topics, and, critically, to publish the work so that we are adding to the store of knowledge both among academic researchers and among policymakers. we are well