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expectations

the view taken of likely future events and changes by persons and firms which serves to influence their current economic behaviour. For example, a holder of a FINANCIAL SECURITY may anticipate that its price is likely to fall in the near future, and this may encourage him to sell the security now rather than incur (an expected) reduction in profits or even losses in the future (see SPECULATION, HEDGING); a TRADE UNION may anticipate that INFLATION is likely to rise, which causes it to put in a demand for a wage increase for its members which in part reflects (an expected) higher rate of future inflation.

expectations

anticipations of future events that influence present economic behaviour. A major unresolved problem in economics is how to deal with the uncertainty that the future holds, especially when each individual has a different subjective perception of that future. In addition, ‘bandwagon’ effects can mean that, once an economy starts to expand, people become more optimistic and so spend and invest more, with cumulative effects. See RISK AND UNCERTAINTY.

Consequently, much economic analysis incorporates expectations into the various models as a given variable, usually under the heading CETERIS PARIBUS, or by assuming that an individual acts in accordance with the RATIONAL EXPECTATION HYPOTHESIS. A further problem is that expectations involve a time period and much economic analysis is static, i.e. points of equilibrium may be observed but the route between them is considered irrelevant. (See COMPARATIVE STATIC ANALYSIS.)

Nevertheless, expectations have played a significant part in economic theory, most notably in the work of KEYNES. Expectations are a major variable, it is argued, in determining BUSINESS CYCLES and affecting the SPECULATIVE DEMAND for money. Expectations are also influential when dealing with the TERM STRUCTURE OF INTEREST RATE.

To incorporate expectations into economic theory, it is possible to treat individual behaviour as adaptive, as illustrated in the ADAPTIVE EXPECTATION HYPOTHESIS.

Although the concept is straightforward, future expectations being adapted from past and present experiences, the attempts to reflect reality have led to complex structures being formulated.

The simplest form of expectations models are extrapolative expectations models where people form expectations about a future economic event like inflation based upon their assumption that the past trend in inflation will continue into the future. See KEYNESIAN ECONOMICS, EXPECTATIONS-ADJUSTED/AUGMENTED PHILLIPS CURVE, SPECULATOR, ANTICIPATED INFLATION, TRANSMISSION MECHANISM.

References in periodicals archive ?
ENPNewswire-August 13, 2019--The Federal Reserve Bank of New York -Household Expectations Remain Stable in July; Inflation Expectations Decline Slightly
At the same time, high past returns predict expectation errors.
(1) Kumar and others (2015) define five statistics to measure the degree of anchoring in inflation expectations based on individual responses to a survey: 1) the average expectation of each individual forecaster, 2) the cross-sectional dispersion in individual forecasts, 3) uncertainty in each individual's forecast, 4) the magnitude of forecast revision, and 5) the predictability of long-run expectations using short-run expectations.
Of course, even after controlling for the second teacher's expectation, the threat of an unobserved factor biasing our results remains.
(7.) Indeed, Higgins and Verbrugge (2015) note that the quantitative influence of energy prices on inflation expectations is "generally quite modest." The estimated size of the expectation responses in that study are very close to those above.
Critique: Practical, informative, insightful, and thoroughly 'user friendly' in tone, content, organization and presentation, "Expectation Hangover: Overcoming Disappointment in Work, Love, and Life" is very strongly recommended for community and academic library Self-Help/Self-Improvement collections.
First we look at three measures of short-term inflation expectations--the median expectation from the monthly University of Michigan Survey of Consumers (UM Survey) and the median CPI and core CPI expectations from the quarterly Philadelphia Fed Survey of Professional Forecasters (SPF).
Environmental Technologies second-quarter sales growth of 15% year over year significantly exceeded expectations; results position business segment to surpass previous full-year growth expectations.
Business grads had the most unrealistic expectations, with a difference of nearly $15,000 between the grads expectations and the median salaries.
Speaking with the summer exam season upon us, he talked of expectations, and the importance of managing them.