Formation of Price and Cost Inflation Expectations in British Manufacturing Industries: A Multi-Sectoral Analysis

Kevin Lee ()

Economic Journal, 1994, vol. 104, issue 423, 372-85

Abstract: The process by which agents form expectations on price and cost inflation is investigated. Measures of expectations of these series, derived from qualitative survey responses in nine industrial sectors covering U.K. manufacturing between 1972 and 1989, are described, and the rationality of these expectations tested. Rationality is not rejected in many sectors and the evidence against rationality much weakened in other sectors, if tests take into account a particular form of conversion error. The possible effect of aggregation bias in the tests is noted, as rationality is rejected with more confidence with aggregated data than when the sectoral data is considered individually. Copyright 1994 by Royal Economic Society.

Date: 1994
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