Survey Expectations

This paper focuses on survey expectations and discusses their uses for testing and modeling of expectations.Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectationsrather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectationsare reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper thenprovides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting

The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey

This paper assesses the accuracy of individuals' expectations of their financial circumstances, as reported in the British Household Panel Survey, as predictors of outcomes and identifies what factors influence their reliability. As the data are qualitative bivariate ordered probit models, appropriately identified, are estimated to draw out the differential effect of information on expectations and realisations. Rationality is then tested and we seek to explain deviations of realisations from expectations at a micro-economic level, possibly with reference to macroeconomic shocks. A bivariate regime-switching ordered probit model, distinguishing between states of rationality and irrationality, is then estimated to identify whether individual characteristics affect the probability of an individual using some alternative model to rationality to form their expectations. --household behaviour,expectation formation

Survey Expectations

This paper focuses on survey expectations and discusses their uses for testing and modeling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectations rather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectations are reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper then provides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting.models of expectations formation, survey data, heterogeneity, tests of rational expectations

Annuities and Aggregate Mortality Uncertainty

This paper explores the effect of aggregate mortality risk on thepricing of annuities. It uses a two-period model; in the second period people face a constant but intiially unknown risk of death. Old people can either carry the aggregat emortlaity risk for themselves or buy annuities which are sold by young people. A market-clearing price for such annuties is established. It is found that old people would, given the choice, decide to carry a considerable part of aggregate mortality risk for themselves.

Pension Arrangements and Retirement Choices in Europe: A Comparison of the British, Danish and German Systems. ENEPRI Research Reports No. 5, 1 February 2005

This paper develops a general equilibrium simulation model of a heterogeneous population in which both consumption/saving and labour/leisure choices are endogenous. The authors use it to explore the effects of the different state benefit systems on the labour supply of old and older workers in Denmark, Germany and the UK. In broad terms, they find that differences in labour force participation can be accounted for by the differences in benefit structures. These conclusions are not altered when they allow for the effects of poor health at different ages. The UK system is found to be preferable by young persons while the German arrangement is preferred by old and older people (who make up the majority in the simulated population)

Education, externalities, fertility, and economic growth

The benefits of education are usually assessed by analyzing rates of return. Social rates of return reflect the fact that education may be provided free or at a subsidized price and that a part of any individual's income accrues to the state through taxation. But they typically do not include private benefits that are not directly connected with the individual's gross earnings; nor do they include the external effects of education on economic growth. Some benefits are generally omitted from calculations of social returns to education, but the estimates produced - ranging from 13 percent to 26 percent - are implausibly high. There are several reasons for this. Studies may not reflect the fact that family background influences both the likelihood of participating in education and a person's future earning power even without education. Failure to take account of the effects of quality of education may also lead to upward bias. An alternative approach is to make cross-country comparisons using macroeconomic data. A number of such studies are discussed. In assessing whether education has any external effect on economic growth, assumptions must be made about education's direct effect on earning power. Based on a conservative figure of a 5 to 8 percent increase in earnings for every year of education, there is some evidence to support the presence of a small externality, but the evidence cannot be said to be overwhelming. There is, however, much clearer evidence of a link between education and fertility rates. The effect is observed in both macroeconomic data and household studies, but is stronger in macroeconomic data for reasons that are not clear. This effect constitutes an externality that - at a time of widespread (but not universal) concern about population growth - is of great importance. The author develops a simulation model from work by Barro and Becker. The model links fertility decisions with consumption/saving decision. In this model, parents derive utility from their children's welfare; as a consequence, children are a form of saving. The model is extended to reflect education as an endogenous decision and then further to look at the effects of an external effect of education on economic growth. Simulations demonstrate that the rate of return on education relative to that on physical capital is a major influence on fertility, suggesting that the model sheds some light on education's external effect on fertility.Curriculum&Instruction,Health Monitoring&Evaluation,Teaching and Learning,Gender and Education,Primary Education

Efficient Aggregation of Panel Qualitative Survey Data

Qualitative business survey data are used widely to provide indicators of economic activity ahead of the publication of official data. Traditional indicators exploit only aggregate survey information, namely the proportions of respondents who report “up” and “down”. This paper examines disaggregate or firm-level survey responses. It considers how the responses of the individual firms should be quantified and combined if the aim is to produce an early indication of official output data. Having linked firms’ categorical responses to official data using ordered discrete choice models, the paper proposes a statistically efficient means of combining the disparate estimates of aggregate output growth which can be constructed from the responses of individual firms. An application to firm-level survey data from the Confederation of British Industry shows that the proposed indicator can provide early estimates of output growth more accurately than traditional indicators.Survey Data; Indicators; Quantification; Forecasting; Forecast Combination