Internal consistency of household inflation expectations: Point forecasts vs. density forecasts

We examine the internal consistency of US households' inflation expectations reported as point and density forecasts by the New York Fed's Survey of Consumer Expectations. We find that the majority of the households report well-defined histograms, with their central tendencies close to the corresponding point forecasts. We observe higher levels of consistency in forecasts reported by survey respondents with higher levels of income, education, and financial literacy. Furthermore, our results suggest that both the point forecasts directly reported and those derived from the histograms are more accurate when they are from respondents who are more likely to report consistent forecasts. In addition, we find that the consensus derived using only the consistent forecasts is as accurate as the consensus derived using all forecasts.& COPY; 2022 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

Automated summary

This study examines the internal consistency of US households' inflation expectations and finds that the majority of households report well-defined histograms with central tendencies close to the corresponding point forecasts. Higher levels of consistency are observed among respondents with higher levels of income, education, and financial literacy. The study suggests that consistent forecasts, both directly reported and derived from histograms, are more accurate. Additionally, the consensus derived from consistent forecasts is comparable in accuracy to the consensus derived from all forecasts.