Abstract
Inflation expectations are central to monetary policy but are often summarized by a single statistic such as the mean or median forecast. This article argues for a distributional view in which the full cross-sectional distribution of beliefs is the relevant object. We first organize the literature around the main distributional features of inflation expectations: the level of expected inflation, disagreement across agents, subjective uncertainty within agents, skewness, and tail behavior. The literature consistently documents large and time-varying disagreement, systematic demographic heterogeneity, non-Gaussian distributions with right skewness and fat tails, and a weak relationship between disagreement and individual uncertainty. We then discuss how household and firm surveys, professional forecasts, market-based indicators, and model-based measures map into these distributional objects, emphasizing that they are distinct measurement technologies tied to different populations and information environments. Finally, a brief empirical illustration shows how standard macroeconomic tools can be adapted to track changes in the shape of the expectations distribution and express those changes as mass shifts across economically meaningful inflation regions, such as deflation, near-target inflation, and high inflation. The policy implication is that central banks should monitor distributional statistics, not only central tendencies, and should interpret different expectation measures as complementary rather than interchangeable indicators.
Introduction
Inflation expectations play a central role in monetary policy because they shape price and wage setting, con-sumption and saving decisions, and thus the transmission of policy to inflation and real activity. In standard expectations-augmented Phillips curve frameworks, short-run inflation expectations of price setters directly influence current inflation outcomes, while longer-run expectations are often viewed as indicators of policy credibility and anchoring. Beyond their role in inflation dynamics, expectations matter for welfare: Disagreement and uncertainty about future inflation generate misallocation, distort intertemporal choices, and impose sizable welfare costs even when average inflation is moderate.
Weber et al. (2022) argue that inflation expectations should not be treated as a single, well-defined object. Instead, different measures of expectations correspond to different economic decision margins. Expectations held by households and firms are particularly relevant because they directly affect consumption, saving, wage setting, and pricing behavior, whereas expectations of professional forecasters or financial market participants primarily influence asset prices and long-term yields.
