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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.


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
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.
The use of survey expectations data was a key feature of macroeconomics in the 1950s and 1960s, and an important part of research at the NBER during that period.
Monetary policy has changed dramatically in the United States over the past decade, with potential implications for investors' inflation expectations. During the financial crisis and Great Recession of 2007-09, the Federal Reserve's conventional policy tool, the nominal short-term interest rate, was constrained by its effective lower bound.
THERE ARE GOOD REASONS TO ASSUME that teachers' beliefs and expectations can influence student success--an idea that has been embraced by parents, students, teachers, and policymakers.
This note discusses a learning-based approach that can be used to approximate agents' expectations about future values of inflation, gross domestic product (GDP), and other economic variables.
In this first monograph on judicial treatment of reasonable expectations of the policyholder or of the insured, the author argues for an incremental but definite acceptance of the conception of policyholderAEs reasonable expectations in English insurance law.
ACCORDING TO THE 2016 GLOBAL BOARD OF DIRECTORS Survey by Spencer Stuart and the WomenCorporate-Directors Foundation, 60% of directors think there is a gap between the expectations placed on boards and the reality of their ability to oversee a company, with 64% of this group saying expectations moderately exceed reality and a notable 25% thinking expectations far exceed reality.