. further, asking about the rate of inflation directly produced answers more consistent with the concept of forward inflation expectations of interest to central banks. rather than replicating the michigan long - term inflation expectation question replacing “ prices in general ” with the “ rate of inflation ” we decided to work with a medium - term explicit horizon and use only a probabilistic version of the question. so for example, in the most recent fielding of our survey, the panel was asked : bis central bankers ’ speeches in your view, what would you say is the percent chance that the following things may happen to the rate of inflation / deflation over the one - year period between february 2013 and february 2014? chart 6 gives you the question in full. we have been fielding the forward inflation expectation question since spring 2008, and chart 7 contains some time - series information from the responses. we use established statistical techniques to estimate continuous probability distributions from each individual set of responses. we then find the median of the medians of the individual distributions to represent the average forward expectation and the upper and lower quartiles of the individual medians to measure disagreement across respondents. for our measure of uncertainty we report the median of the individual inter - quartile ranges. as a complement to attempting to improve the measurement of household forward inflation expectations, we have also been investigating expectations about wage growth. because firms and workers may negotiate changes in wages to be in line with their expected rate of inflation, data on wage expectations are an additional information source for analyzing inflation dynamics and the interaction between wage and price determination. furthermore, discrepancies between expected changes in wages and expected inflation may affect households ’ financial decisions. despite the obvious importance of wage expectations, information on wage expectations is particularly scarce. in formulating a question on wage expectations we needed to pose a hypothetical situation to gain information of direct relevance to inflation. it is easiest to illustrate this by giving you the format and exact wording of the question : we first asked individuals who reported to be working for pay how many jobs they had. we then informed them that in some subsequent questions we would ask about their main job, which we defined to be the job at which they usually work the most hours. we then ask : “ suppose that, 12 months from now, you actually are working in the exact same [ main ] job at the same place you currently work, and working the exact same number of hours. twelve months from now, do you expect your earnings on this job

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