BIS central bankers’ speeches  15  across respondents for the 2018 projections in December, and in the dark blue bars, the distribution for the 2018 projections in January. It is clear that dispersion in beliefs fell dramatically between the two surveys. The right panel shows that dispersion increased slightly in March but remains below the December levels. Belief heterogeneity Slide 14 already illustrates that forecasts are very different across survey respondents. I’ll now provide further evidence of how pervasive and important heterogeneity in beliefs is. Recall that in both the recent March and January surveys, respondents were asked about their subjective probability of “returning to the ZLB at some point in 2016–2018.” Slide 15 plots the distribution across respondents of this probability. It shows that respondents belonged to three groups, roughly speaking: a few who believed this probability to be low (less than 15 percent of respondents), a majority who thought the probability was about one in four (between 20 and 35 percent of respondents), and a sizable minority who assessed this probability as fairly large (more than 40 percent of respondents). This heterogeneity in the probability assigned to a return to the ZLB translates of course into heterogeneity in the probability distribution for the federal funds rate. The left panel of Slide 16 shows the smoothed density forecasts for the year-end 2017 federal funds rate for all March 2016 survey respondents. The density shown in the bottom left panel of Slide 10 is simply the average of the densities shown in Slide 16.
BIS central bankers’ speeches  5  information on household inflation expectations at the time; tested alternative wording of potential inflation expectations questions; studied the feasibility of eliciting individual uncertainty about future outcomes for inflation, house prices, and earnings growth; and introduced a panel dimension to the experimental data collection effort in order to study the persistence of inflation expectations and their responsiveness to inflation surprises. The HIEP considered different potential time horizons for its inflation expectations questions. For the short-term expectations, we settled on the one-year-ahead horizon – similar to the Michigan survey. We also examined the feasibility of asking for inflation expectations over a longer time horizon. The Michigan survey asks respondents by what percent per year they “expect prices to go up or down on the average, during the next 5 to 10 years”.17 We replicated this question in our experimental surveys, and found that the Michigan question elicits a mixture of interpretations, with some respondents using a 10-year horizon and others thinking about a 5-year horizon.18 From the results of our cognitive interviews and experimental surveys, we decided in the SCE to elicit medium-term inflation expectations at the one-year two-year-forward horizon.