These results have guided changes introduced to questions in the survey, which have gone some way towards reducing the commonly observed upwards bias in surveyed consumer inflation expectations. Conclusion  18. To conclude, inflation dynamics and expectations are important underpinnings of the macroeconomic dynamics confronting the region in the period ahead. The organisations represented here are at the forefront of analysis into the various aspects of these developments. I am sure there will be interesting insights and perspectives from this Seminar. [1] See for example, Crust, E, Daly, M, and Hobijn, B (2020), “The Illusion of Wage Growth”, Federal  Reserve Bank of San Francisco, Economic Letters, 2020-26. [2] International Monetary Fund (2021), “Chapter 1. Global Prospects and Policies”, World Economic  Outlook: Managing Divergent Recoveries, April. [3] See for example: Shiller, R. J. (1981), “Do Stock Prices Move Too Much to be Justified by Subsequent  Changes in Dividends?”, American Economic Review, Vol. 71(3), pp.421 – 436; Akerlof, G. A. (1970), “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”, The Quarterly Journal of Economics, Vol. 84(3), pp.488 – 500. [4] Akerlof, G. A. and Shiller, R. J. (2009), Animal Spirits, Princeton University Press. [5] Gennaioli, N. and Shleifer, A. (2018), A Crisis of Beliefs, Princeton University Press. [6] Representativeness entails a judgement error of overestimating the likelihood of representative  attributes which appear with higher relative frequency in a class. See reference in note 4. [7] Agarwal, S. and Yeung, B, (2021), “Inflation Expectations and Household Consumption”,  Macroeconomic Review, Vol.
I am quite sure that there has been a distinctive step-up in the recourse to notions of expectations and sentiments by forecasters in explaining their muted or upbeat prognosis for macroeconomic variables in the period ahead. 14. Andrei Shleifer and co-authors have worked on formalising the insights of behavioural economics, such as representativeness heuristics as the basis for realistic expectation formations, within familiar analytical frameworks [5] . Specifically, Shleifer shows how representativeness thinking may cause agents to over-weight the probability of good fortune, due to selective retrieval of information from memory, inducing excessive optimism [6] . Embedded in a dynamic model of credit, such drivers of expectations formation can amplify pro-cyclical booms and busts in the issuance of risky credit, credit spreads as well as in investment spending. 15. Separately, on the empirical side, we have also seen much eﬀort in the literature to better measure expectations. The point of departure is that survey expectations are not “noise”. They are a useful tool insofar as they reflect what market participants and other agents believe and act on. Our latest Macroeconomic Review featured an article by Professor Bernard Yeung and Sumit Agarwal of the NUS Business School, reviewing the latest research work on surveying and characterising consumer expectations [7] . Attempts to make inferences on the formation of expectations and validate any causal impact of expectations on economic behaviour are o en thwarted by endogeneity or imprecise estimates.