The Advantages of Probabilistic Survey Questions

Review of Economic Analysis 9 (1), 1-32

32 Pages Posted: 12 Jan 2018

See all articles by Simon Potter

Simon Potter

Federal Reserve Bank of New York

Marco Del Negro

Federal Reserve Bank of New York

Giorgio Topa

Federal Reserve Bank of New York

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Date Written: June 8, 2017

Abstract

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. In addition to model- and market-implied measures, there has been a growing interest in and reliance on survey-based measures of subjective expectations. This article describes two major innovative survey initiatives conducted by the New York Fed to measure policy-relevant expectations of households and market participants: the Survey of Consumer Expectations, and the Survey of Primary Dealers and Survey of Market Participants. A key feature of these surveys is its use of a probabilistic question format to elicit the likelihood respondents assign to different future events. We discuss the advantages of using probabilistic questions, illustrate their value in more fully measuring beliefs and uncertainty, and document the pervasiveness and importance of heterogeneity in beliefs among our survey respondents.

Keywords: subjective uncertainty, probabilistic survey questions, expectation formation and updating, belief heterogeneity

JEL Classification: C80, C83, C53, D80

Suggested Citation

Potter, Simon and Del Negro, Marco and Topa, Giorgio and van der Klaauw, H. Wilbert, The Advantages of Probabilistic Survey Questions (June 8, 2017). Review of Economic Analysis 9 (1), 1-32. Available at SSRN: https://ssrn.com/abstract=3098648

Simon Potter (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

Marco Del Negro

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

H. Wilbert Van der Klaauw

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)

IZA ( email )

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